1.The First Respondent (Coles) and the Second Respondent (GHPL) have given an undertaking to the Applicant pursuant to s 87B of the Competition and Consumer Act 2010 (Cth) (Act) relating to each of the Tier 3 suppliers who have made a payment of an Active Retail Collaboration rebate (the ARC rebate) to Coles or GHPL in the course of its Active Retail Collaboration Program (ARC).

THE COURT DECLARES THAT:

Austech

2.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Austech Products Pty Ltd (Austech), Coles, by:

2.1.requiring Austech to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely that Coles:

2.1.1.would provide certain ranging information requested by Austech but only after Austech agreed to pay the ongoing rebate; and

2.1.2.would cease giving assistance to Austech from Coles’ replenishers; and

2.2.refusing to take into account the reasons given to Coles by Austech why the rebate would not have the benefit to it that Coles claimed,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of Sch 2 to the Act (Australian Consumer Law).

Oates

3.In October 2011, in trade or commerce in connection with the acquisition of grocery products from E. D. Oates Pty Ltd (Oates), Coles, by requiring Oates to make an agreement to pay an ongoing rebate to it or GHPL, and making threats of commercial consequences to it if it did not, namely thatif Oates did not sign up to ARC:

3.1.this may impact on Coles’ decisions about ranging Oates’ products relative to other suppliers;

3.2.there may be risks to promotional activity for Oates’ products; and

3.3.Oates would be classified as a ‘transactional’ supplier, which may have implications for ranging,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

Paton’s

4.In October 2011, in trade or commerce in connection with the acquisition of grocery products from Paton’s Macadamia Plantations Pty Ltd (Paton’s), Coles, by requiring Paton’s to make an agreement to pay an ongoing rebate to it or GHPL, and making threats ofcommercial consequences to it if it did not, namely that Coles:

4.1.would not promote Paton’s products;

4.2.would not acquire new products from Paton’s;

4.3.would not provide Paton’s with forecasting information that had been providedwithout charge prior to the requirement,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

Stuart Alexander

5.In October 2011, in trade or commerce in connection with the acquisition of groceryproducts from Stuart Alexander & Co Pty Ltd (Stuart Alexander), Coles, by requiringStuart Alexander to make an agreement to pay an ongoing rebate to it or GHPL, and makingthreats of commercial consequences to it if it did not, namely that Coles:

5.1.would not acquire new products from Stuart Alexander; and

5.2.would not promote Stuart Alexander’s products,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

Tru Blu

6.In October 2011, in trade or commerce in connection with the acquisition of groceryproducts from Tru Blu Beverages Pty Ltd (Tru Blu), Coles, by:

6.1.requiring Tru Blu to make an agreement to pay an ongoing rebate to it or GHPL, andmaking threats of commercial consequences to it if it did not, namely that Coles:

6.1.1.would not meet with Tru Blu;

6.1.2.would not continue any contractual negotiations then on foot withTru Blu; and

6.2.refusing to take into account the reasons given to Coles by Tru Blu why therebate would not have the benefits to it that Coles claimed,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

THE COURT ORDERS THAT:

7.Coles pay the Commonwealth of Australia, within 30 days of the date of this Order,pecuniary penalties pursuant to s224 of the Australian Consumer Law, inrespect of the contraventions declared in paragraphs 2 to 6 of this Order, as follows:

7.1.in the case of Austech, the sum of $700,000;

7.2.in the case of Oates, the sum of $800,000;

7.3.in the case of Paton’s, the sum of $800,000;

7.4.in the case of Stuart Alexander, the sum of $700,000; and

7.5.in the case of Tru Blu, the sum of $700,000.

8.Coles pay the Applicant, within 30 days of the date of this Order, a contributiontowards its costs of and incidental to these proceedings in the sum of $1 million, and otherwise there be no order as to costs.

9.The proceedings otherwise be dismissed.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011(Cth).

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

GENERAL DIVISION

VID 609 of 2014

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

COLES SUPERMARKETS AUSTRALIA PTY LTD (ACN 004 189 708)

First Respondent

GROCERY HOLDINGS PTY LTD (ACN 007 427 581)

Second Respondent

JUDGE:

GORDON J

DATE OF ORDER:

22 DECEMBER 2014

WHERE MADE:

MELBOURNE

THE COURT NOTES THAT:

1.The First Respondent (Coles) and the Second Respondent (GHPL) have given an undertaking to the Applicant pursuant to s 87B of the Competition and Consumer Act 2010 (Cth) (Act) relating to each of the suppliers named in the Statement of Claim in these proceedings.

THE COURT DECLARES THAT:

Austech

2.In June 2011, in trade or commerce and in connection with the acquisition of groceryproducts from Austech Products Pty Ltd (Austech), Coles, by demanding payments of$25,845 and $15,516.74 towards Coles’ profit where this had not been the subject ofprior agreement between either Coles or GHPL and Austech and the payments were attributable toissues that arose before Austech owned the relevant product, engaged in conduct thatwas in all the circumstances unconscionable in contravention of s 22 as it then stood ofSch2 of the Act (Australian Consumer Law).

3.In June 2011, in trade or commerce and in connection with the acquisition of groceryproducts from Austech, Coles by:

3.1.demanding a $5,700 retrospective payment for the cost to Coles of waste in relation to Austech’s products;

3.2.requiring a response to that demand within hours, where the payment was notthe subject of prior agreement; and

3.3.using a purported profit gap claim as leverage in the negotiations,

engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

4Between July and November 2011, in trade or commerce and in connection with theacquisition of grocery products from Austech, Coles, by refusing to cease deductingand retaining payments under an agreement with Austech for deferred rebates whichwas due to expire, engaged in conduct that was in all the circumstancesunconscionable in contravention of s 22 as it then stood of the Australian ConsumerLaw.

Oates

5.In June and July 2011, in trade or commerce and in connection with the acquisition of grocery products from E.D. Oates Pty Ltd (Oates), Coles, by demanding andprocessing a payment of $246,000 towards Coles’ profit, which was outside terms andconditions and without the agreement of Oates, engaged in conduct that was in all the circumstances unconscionable in contravention of s22 as it then stood of theAustralian Consumer Law.

6.Between July 2011 and December 2011, in trade or commerce and in connection withthe acquisition of grocery products from Oates, Coles, by refusing to repay the moniesreferred to in paragraph 5 of this Order, and by retaining those monies, engaged in conduct thatwas in all the circumstances unconscionable in contravention of s22 as it thenstood of the Australian Consumer Law.

Colonial Farm

7.Between October and November 2011, in trade or commerce and in connection with the acquisition of grocery products from Colonial Farm (Aust.) Pty Ltd (Colonial Farm), Coles, by requiring an agreement by which Colonial Farm would pay for 100% of the cost of waste in relation to Colonial Farm’s products in circumstances where Coles was aware that Colonial Farm was in financial difficulty and did not take into account Colonial Farm’s explanation that its products were not appropriate for a 100% waste agreement, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

Bayview

8.In October and November 2011, in trade or commerce and in connection with theacquisition of grocery products from Bayview Seafoods Pty Ltd (Bayview), Coles, byrequiring an agreement by which Bayview would pay for 100% of the cost of waste inrelation to Bayview’s products in circumstances where Coles was aware that Bayviewwas in financial difficulty and did not take into account Bayview’s explanation of the cause of the waste, engaged in conduct that was in all the circumstancesunconscionable in contravention of s 22 as it then stood of the Australian ConsumerLaw.

9.In October and November 2011, in trade or commerce and in connection with theacquisition of grocery products from Bayview, Coles, by requiring and accepting apayment from Bayview for late delivery of Bayview’s products of $30,500where this had not been the subject of prior agreement with Bayview, engaged inconduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

Benny’s

10.Between August and November 2011, in trade or commerce and in connection with theacquisition of grocery products from Benny’s Confectionery Pty Ltd (Benny’s), Colesby, on two occasions, imposing penalties on Benny’s for short or late delivery of Benny’sproducts totalling $1,639 without notice to or prior agreement with Benny’s, engaged in conduct that was in all the circumstances unconscionable in contravention of s 22 as it then stood of the Australian Consumer Law.

11.Between August and November 2011, in trade or commerce and in connection with theacquisition of grocery products from Benny’s, Coles, by refusing to repay the penaltiesreferred to in paragraph 10 of this Order, engaged in conduct that was in all the circumstancesunconscionable in contravention of s 22 as it then stood of the Australian ConsumerLaw.

THE COURT ORDERS THAT:

12.Coles pay the Commonwealth of Australia, within 30 days of the date of this Order,pecuniary penalties pursuant to s224 of the Australian Consumer Law, inrespect of the contraventions declared in paragraphs 2 to 11 of this Order, as follows:

12.1.in respect of the contravention declared in paragraph 2 of this Order, the sum of$650,000;

12.2.in respect of the contravention declared in paragraph 3 of this Order, the sum of$500,000;

12.3.in respect of the contravention declared in paragraph 4 of this Order, the sum of$650,000;

12.4.in respect of the contravention declared in paragraph 5 of this Order, the sum of$650,000;

12.5.in respect of the contravention declared in paragraph 6 of this Order, the sum of$900,000;

12.6.in respect of the contravention declared in paragraph 7 of this Order, the sum of $550,000;

12.7.in respect of the contravention declared in paragraph 8 of this Order, the sum of$550,000;

12.8.in respect of the contravention declared in paragraph 9 of this Order, the sum of$650,000;

12.9.in respect of the contravention declared in paragraph 10 of this Order, the sum of$600,000;

12.10.in respect of the contravention declared in paragraph 11of this Order, the sum of$600,000.

13.Coles pay the Applicant, within 30 days of the date of this Order, a contributiontowards its costs of and incidental to these proceedings in the sum of $250,000, andotherwise there be no order as to costs.

14.The proceeding otherwise be dismissed.

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

INDEX

Contents

Par

1

INTRODUCTION

[1]

1.1The Proceedings

[3]

2

VID 253 OF 2014 – THE ARC PROCEEDING

2.1Background

[12]

2.1.1Coles’ market share and power

[13]

2.1.2Coles’ Trading Arrangements and the ARC rebate

[19]

2.2Contraventions

2.2.1Section 22 of the ACL

[34]

2.2.2Suppliers

[37]

2.2.2.1Austech

[40]

2.2.2.2Oates

[45]

2.2.2.3Paton’s

[51]

2.2.2.4Stuart Alexander

[57]

2.2.2.5Tru Blu

[63]

2.3Principles applicable to relief

2.3.1Orders sought by agreement

[69]

2.3.2Declarations

[74]

2.3.3Penalties

[81]

2.3.3.1Factors relevant to setting a penalty

[83]

2.3.3.2Other penalty factors including approach to penalties sought by agreement of the parties

[84]

2.4Analysis of Proposed Penalties

[87]

2.4.1Nature, extent and duration of conduct and the circumstances in which conduct took place

2.4.1.1 Extent of the conduct

[89]

2.4.1.2 Background circumstances relating to the contravening conduct

[90]

2.4.1.2.1 Coles general business practices and profit targets

[91]

2.4.1.2.2 Development of the ARC Plan

[93]

2.4.1.2.3 Delivery of the ARC Instructions

[95]

2.4.1.3 Relationship of the background circumstances to specific instances of unconscionable conduct

[96]

2.4.1.4 Nature of the conduct

[97]

2.4.2Amount of loss caused and profit gained

[107]

2.4.3Whether the respondent has engaged in similar prior conduct

[110]

2.4.4 Size of contravener, including market share, and its financial position

[111]

2.4.5The deliberateness of the contravening conduct

[114]

2.4.6Involvement of senior employees or management

[115]

2.4.7Culture of compliance and corrective measures in response to contravention

[117]

2.4.8Co-operation

[122]

2.4.9Maximum penalties and one transaction principle

[125]

2.4.10Identifying the penalties for particular contraventions

[129]

2.4.11Totality principle

[132]

2.4.12Conclusion on appropriate penalty

[133]

2.5Costs

[134]

3

VID 609 of 2014 – THE CLAIMS PROCEEDING

3.1Background

[135]

3.1.1Coles’ market share and power

[139]

3.1.2Coles’ Trading Arrangements

[140]

3.1.3Coles’ Business Practices

[141]

3.1.3.1Profit gaps

[142]

3.1.3.2Waste and markdowns

[144]

3.1.3.3Short or Late Deliveries

[146]

3.2Contraventions

3.2.1Section 22 of the ACL

[148]

3.2.2Suppliers

[149]

3.2.2.1Austech

[150]

3.2.2.2Oates

[163]

3.2.2.3Colonial Farm

[170]

3.2.2.4Bayview

[176]

3.2.2.5Benny’s

[185]

3.3Principles applicable to relief

[194]

3.4Analysis of proposed penalties

[198]

3.4.1Nature, extent and duration of conduct and the circumstances in which conduct took place

3.4.1.1Extent of the conduct

[199]

3.4.1.2Background circumstances relating to the contravening conduct

[200]

3.4.1.3Relationship of the background circumstances to specific instances of unconscionable conduct

[201]

3.4.1.4Nature of the conduct

[202]

3.4.2Amount of loss caused and profit gained

[211]

3.4.3Whether the respondent has engaged in similar prior conduct

[215]

3.4.4Size of contravener, including market share, and its financial position

[216]

3.4.5The deliberateness of the contravening conduct

[217]

3.4.6Involvement of senior employees or management

[218]

3.4.7Culture of compliance and corrective measures in response to contravention

1Coles(collectively the First and Second Respondents) is the second largest retailer of grocery products in Australia. Coles engaged in unconscionable conduct in its dealings with a number ofsuppliers of products that it sold. Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power. Its conductwas “not done in good conscience”. It was contrary to conscience. Coles treated itssuppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliersto which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coleswithheld money from suppliers it had no right to withhold. Coles now admits that its conduct was contrary to law and involved serious breaches of s 22 of the Australian Consumer Law (ACL) as it then stood in Sch 2 to the Competition and Consumer Act 2010 (Cth) (Act), meriting serious punishment.

2Coles and the applicant (the ACCC), have reached agreement as to the relief they submit is appropriate to be sought from the Court to resolve the proceedings.As will be explained, Coles and ACCC have agreed that Coles should pay penalties totalling $10 million, should pay $1.25 million towards the ACCC’s costs and should establish a system that will permit those harmed by Coles’ conduct to recover compensation. Coles’ conduct was of a kind which merits severe penalty. But for Coles making the admissions it has now made and acknowledging the gravity of its contravening conduct, the conduct and circumstances in which it was committed would have warranted imposing penalties at or close to the maximum the law permits. In light of Coles’ admissions and acknowledgement, the time at which they were made and the other features of the orders upon which the parties agree (including in particular the arrangements for access to compensation), orders will be made substantially in the terms agreed by the parties.

1.1The Proceedings

3The ACCC filed two proceedings against Coles.

4The first proceeding (VID 253 of 2014)(the ARC Proceeding)was commenced by the ACCC on 5 May 2014 following an investigation into dealings between Coles and what were called Tier 3 Suppliers. There were approximately 220 Tier 3 Suppliers,being suppliers where the annual sum spent by Coles on acquiring that supplier’s grocery products was generally greater than $3 million and for whom Coles’ documents stated Coles represented a “very significant part” of the supplier’s business: Annexure 1, par 27.

5The ACCC alleged, and Coles has now accepted, that Coles contravened s 22 of the (then) ACL in relation to five Tier 3 Suppliers when Coles made demand for payment of an Active Retail Collaboration rebate(the ARC rebate) in the course of its Active Retail Collaboration Program (ARC). The ARC rebate was a payment made from a supplier to Coles, calculated as a percentage of the price Coles paid for the products and deducted by Coles from monies owed to the supplier for products that it had already supplied to Coles.

6Coles admits that the conduct disclosed in a statement of agreed facts and admissions (SoAFA), set out in Annexure 1 to these reasons for judgment, was unconscionable and contrary to law.The facts agreed to, and the admissions made, in the SoAFA are made pursuant to s 191 of the Evidence Act 1995 (Cth) (Evidence Act) for the purposes of the ARC Proceeding, and are admissions upon which the Court may rely to pronounce judgment and make orders. Itwill be necessary to return to consider those facts and admissions.

7Coles and the ACCC reached agreement as to the terms of relief they contended appropriate to be sought from the Court to resolve the ARC Proceedingwhilst acknowledging that the questionof relief is for the Court to determine in its discretion. In general terms, the ACCC and Coles asked that theCourt make declarations of contraventions pursuant to s 21 of theFederal Court of Australia Act 1976 (Cth)(Federal Court Act),order payment by Coles of pecuniary penalties totalling $3,700,000 pursuant to s 224of the ACLandorder payment by Coles of a contribution to the ACCC’s costs in the amount of $1 million pursuant to s 43 of the Federal Court Act.

8The second proceeding (VID 609 of 2014)(the Claims Proceeding)was commenced by the ACCC on 16 October 2014. In the Claims Proceeding, the ACCC alleged that Coles, by its conduct inrelation to its dealings with five named suppliers, contravened s 22 of the (then) ACL. In general terms, that conduct involvedColes seeking payments from those suppliers outside of the terms of the arrangements negotiated between the supplier and Coles. Thepayments demanded by Coles were for so called profit gaps, waste and markdowns and short or late deliveries and were deducted by Coles from monies due to be paid to that supplier for products that it had already supplied to Coles. Coles now admits that it had no reasonable basis for making the claims that it made and that conduct (disclosed in a separate SoAFA, set out in Annexure 2 to these reasons for judgment)wasunconscionable and contrary to law. The facts agreed to and the admissions made in that SoAFA were again made pursuant to s 191 of the Evidence Act for the purposes of the Claims Proceeding, and are admissions upon which the Court may rely to pronounce judgment and make orders. It will be necessary to return to consider those facts and admissions.

9Coles and the ACCC reached agreement as to the terms of relief they contended appropriate to be sought from the Court to resolve the Claims Proceeding whilst again acknowledging that the question of relief is for the Court to determine in its discretion. In general terms, theACCC and Coles asked that the Court make declarations of contraventions pursuant to s 21 of the Federal Court Act, order payment by Coles of pecuniary penalties totalling $6,300,000 pursuant to s 224 of the ACL and order payment by Coles of a contribution to the ACCC’s costs in the amount of $250,000 pursuant to s 43 of the Federal Court Act.

10In relation to both proceedings, Coles has provided an undertaking under s 87B of the Act. Itis Annexure 3 to these reasons for judgment. The undertaking is an important element of Coles’agreement with the ACCC and the Court’s assessment of the relief the parties seek by agreement. It will be necessary to consider that undertaking later in these reasons for judgment.

11Each proceedingwill be considered in turn. For each proceeding,the reasons for judgment will address thenature and background to that proceeding, the admitted contraventions and the applicable principles in relation to the relief sought. The reasons will then consider the appropriateness of the proposed declarations of contravention and the pecuniary penalties.

2.VID 253 OF 2014 – THE ARC PROCEEDING

2.1Background

12The following summary is sourced from, and cross referenced to, the SoAFA in Annexure 1. The contravening conduct occurred from about 1 April 2011 to about 31 December 2011 (the ARCrelevant period): Annexure 1, par 3.

2.1.1Coles’ market share and power

13During theARC relevant period, Coles carried on business, in trade or commerce, as asupermarket retailer. Coles engaged in a business of acquiring grocery productsfrom suppliers, and selling those products to customers in Australia through Coles’retail stores (the Coles business): Annexure 1, pars 4-6. Coles referred, and continues to refer, to the steps and infrastructure involved in acquiring grocery products for retail sale from suppliers and distributing them to Coles’ retail stores for display and sale as its Supply Chain: Annexure 1, par 7.Duringthe ARC relevant period, Coles supplied approximately 30% of the grocery productssupplied for retail sale to customers in Australia. Together with Woolworths, Colessupplied approximately 60% to 70% of the grocery products for retail sale tocustomers in Australia: Annexure 1, par 9.

14The Coles business had revenue in the order of $22.1 billionfor the financial year ending 30June 2011 and in the order of $23.3 billion for the year ending 30 June 2012: Annexure1, par 10.

15The Coles business was, and continues to be, structured by reference to groups of similar or related grocery products (General Categories): Annexure 1, pars 11-13. In that structure:

(1)Each General Category was managed by a General Manager (GM);

(2)Within each General Category, the Coles business was managed by reference to smaller groups of similar or related grocery products (Business Categories);

(3)Each Business Category was managed by a Business Category Manager (BCM);

(4)Each BCM reported to a GM;

(5)Within each Business Category, the Coles business was managed by reference to smaller groups of similar or related products (Categories);

(6)Each Category was managed by a Category Manager (CM); and

(7)Each CM reported to a BCM.

The GMs and BCMs were Coles’ Senior Managers, and together with the CMs acted on behalf of Coles in relation to the contravening conduct.

16Coles’ suppliers range from large multinational companies to very small Australiansuppliers. By about August 2011, Coles had created three categories of suppliers –Tier 1 Suppliers, Tier2 Suppliers and Tier 3 Suppliers. The Tier 1 Suppliers were identified by Coles as its largest suppliers with the most complex supply chains, and included Nestle, General Mills and Procter & Gamble. The Tier 2 Suppliers were identified by Coles as large suppliers with “simple” supply chains. As noted earlier, the Tier 3 Suppliers comprised approximately 220 suppliers. Those suppliers were identified by Coles as, and believed by Coles to be, its “smaller” suppliers in terms of the annual sum spent by Coles on acquiring the supplier’s grocery products (the COGS) as compared to the annual sum spent by Coles on acquiring grocery products from Tier 1 and Tier 2 suppliers, were suppliers whose COGS were generally greater than $3 million and were suppliers for whom Coles’ documents stated Coles represented a “very significant part” of the supplier’s business: Annexure 1, pars 24-27.

17Many of Coles’ smaller suppliers have total annual revenue whichrepresents less than a fraction of one per cent of Coles’ annual revenue, including the Tier 3 Suppliers the subject of the admitted contraventions: Annexure 1, par 10.

18For the purpose of these admitted contraventions, the Tier 3 Suppliers were:

(1)Austech Products Pty Ltd (Austech);

(2)E.D. Oates Pty Ltd (Oates);

(3)Paton’s Macadamia Plantations Pty Ltd (Paton’s);

(4)Stuart Alexander & Co Pty Ltd (Stuart Alexander);and

(5)Tru Blu Beverages Pty Ltd (Tru Blu).

2.1.2Coles’ Trading Arrangements and the ARC rebate

19During the ARC relevant period, Coles acquired grocery products for retail sale from itssuppliers pursuant to arrangements negotiated between Coles and each supplier(Trading Arrangements): Annexure 1, par 14. Most of the conditions relating to the acquisition by Coles of grocery products from a supplier, including whether Coles would continue to acquire products from that supplier, were determined by representatives of Coles: Annexure1, par 17.

20The Trading Arrangements required that Coles be paid variousrebates by the suppliers on an ongoing basis. Coles’ conduct in relation to the incorporation of the ARC rebate into the Trading Arrangements for a supplier is the subject of the ARC Proceeding. The nature of a rebate,and the ARC rebate in particular, has been described earlier: see [5] above and Annexure 1, par 16.

21By about 9 September 2011, Coles determined that the ARC rebate would be divided into two components (Annexure 1, pars 23 and 29):

(1)An amount said to be attributed by Coles to the value to the supplier from Coles changing its ordering patterns to order grocery products from the supplier in more economically efficient ordering quantities (EOQ ordering); and

(2)An amount said to be attributed by Coles to the value to the supplier of data sharing on an internet-based “Supplier Portal” and associated changes of 35 day order plan, nine week sales forecast, six week promotional lock-down and 12 week notice for product deletion (data sharing).

22By about 10 October 2011, Coles had determined that the ARC rebate to be paid by Tier 3 Suppliers would be the sum of a data sharing component of 0.7% of the price Coles paid for a supplier’s grocery products and an EOQ ordering component fixed at a percentage amount of the price Coles paid for a supplier’s grocery products that equated to the value Coles attributed to the supplier of EOQ ordering: Annexure 1, par 31.

23Coles calculated the rebate for EOQ ordering by:

(1)Making a series of assumptions about Tier 3 Suppliers’ activities when picking a pallet and delivering the pallet to Coles;

(2)Attributing costs to each of those activities based on Coles’ own costs; and

(3)Inserting data about those activities, historical ordering patterns and costs into a standard formula that was used for all Tier 3 Suppliers regardless of each Tier 3 Supplier’s individual circumstances.

Coles set a target of $16 million for the amount of money it would seek to obtain in ARC rebates from Tier 3 Suppliers in the financial year ended 30 June 2012: Annexure 1, pars 32-33.

24By about 14 October 2011, Coles had developed a plan for applying ARC to Tier 3 Suppliers (the Tier 3 ARC Plan). The Tier 3 ARC Plan was approved by Senior Managers:Annexure1, pars 34 and 36. The Tier 3 ARC Plan was initially implemented by a CM. Ifnecessary, action would be escalated to a BCM or GM. The Tier 3 ARC Plan involved a number of steps. Thesteps were deliberate, orchestrated and relentless. Thesteps were described in the following terms (Annexure 1, par 34):

34.1. CMs would:

34.1.1.on or around 17 or 18 October 2011, seek the agreement of each Tier 3 Supplier to make ongoing payments to Coles by the incorporation of the ARC rebate into their Trading Arrangements with Coles (referred to by Coles, and in the remainder of this document, as ‘the Ask’);

34.1.2.deliver the Ask in accordance with a standardised script provided by Coles (the Script);

34.1.3.respond to questions from Tier 3 Suppliers about the benefits that were said to flow to them from data sharing and EOQ ordering using a set of prescribed answers;

34.1.4.at their discretion, provide the Supplier with a two-page document that was in a standardised form and purported to explain the basis on which the ARC rebate was calculated (the Background Materials);

34.1.5.at their discretion, provide Suppliers with a Supplier Portal information pack which explained some features of the portal;

34.1.6.record the agreement of Tier 3 Suppliers to the Ask in an executed amended version of the Supplier’s Trading Terms incorporating the ARC rebate on an ongoing basis (the Revised Trading Terms);

34.1.7.not have the authority to negotiate on the amount of the ARC rebate with the Tier 3 Supplier but could escalate the negotiation to a more senior person within Coles;

34.1.8.seek to have Tier 3 Suppliers agree to the Ask within a number of days;

34.1.9if the CM could not obtain the agreement of a Tier 3 Supplier to the Ask, notify the Tier 3 Supplier that its position on the Ask would be ‘escalated’ to a BCM.

34.2.if a CM could not obtain the agreement of a Tier 3 Supplier to the Ask, responsibility for obtaining the Tier 3 Supplier’s agreement was to be ‘escalated’ from the CM to the BCM to whom the CM reported;

34.3.the BCM to whom responsibility for obtaining the Supplier’s agreement to the Ask had been ‘escalated’ had authority to accept agreement from the Tier 3 Supplier to the Ask in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;

34.4.if a BCM could not obtain the agreement of a Tier 3 Supplier, the BCM was to consider:

34.4.1.notifying the Supplier that its position on the Ask would be escalated within Coles, such as to the GM to whom the BCM reported;

34.4.2.escalating the Tier 3 Supplier’s position within Coles, such as to the GM to whom the BCM reported.

34.5.GMs had authority to accept an agreement by a Tier 3 Supplier in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;

34.6.‘escalation’ of a Supplier’s refusal of the Ask involved the BCM or GM to whom the matter had been elevated making contact with the Tier 3 Supplier in an attempt to secure the Supplier’s agreement (Escalation).

25The Script (identified in the extract in [24] above) contained statements to the effect that Coles had made changes to its Supply Chain, the changes Coles made to its Supply Chain would be of benefit to thesupplier identified in the Script, andColes had identified and calculated savings to that supplier’s business inrespect of data sharing and EOQ ordering: Annexure 1, par 37. The Background Materials contained statements to the effect that data sharing would lead to value to the supplier of well over 0.7% of the price Coles paid for the supplier’s grocery products and EOQ ordering, where applicable to the supplier, would lead to value to the supplier of at least a specified percentage of the price Coles paid for the supplier’s grocery products: Annexure 1, par 38.

26For the reasons that follow, the Tier 3 ARC Plan and, in particular, the Script and Background Materials, were contrary to law. In putting forward the Script and the Background Materials, Coles had attributed a value to a data sharing benefit that it considered would apply to all Tier 3 Suppliers taken as a whole, but had not identified or calculated any particular savings to any individual Tier 3 Supplier’s business, and had calculated the value of EOQ ordering by the method at [23] above but had not taken any steps to establish whether its assumptions reflected the actual value of EOQ ordering to any individual Tier 3 Supplier’s business: Annexure 1, par 39. Inaddition, the Script and the Background Materials did not contain information that explained or justified the basis on which the data sharing or EOQ ordering components of the ARC rebate had been determined by Coles: Annexure 1, par 40.

27The CMs and the BCMs then attended training and were instructed to act in accordance with the Tier 3 ARC Plan: Annexure 1, par 41. For example, they were told (Annexure 1, par42):

42.1this is not optional for suppliers;

42.2.Coles ‘needed’ the CMs to achieve its $16 million target and that this was Coles’ ‘one off chance’ to close [its profit] gap at scale’;

42.3.they would be given a Script to follow and provided with Background Materials and FAQs to be used in the Tier 3 ARC process;

42.4.they were to finalise trading terms with each Tier 3 supplier, incorporating an ARC rebate, within two to three days of making the Ask;

42.5.if a supplier did not agree to pay an ARC rebate within one to two days, the CM or BCM was to consider using commercial leverage;

42.6.various prizes would be awarded to CMs and BCMs who ‘landed’ suppliers.

The training included presentations by Senior Managers.

28The Tier 3 ARC Plan, as its core, was deliberate, orchestrated and relentless. As will be seen, its implementation by the CMs and the BCMs was also deliberate, orchestrated and relentless.

29By about 14 October 2011, the CMs and BCMs had been provided with materials which directed their implementation of the Tier 3 ARC Plan: Annexure 1, par 43. The CMs had been provided with a list of the Tier 3 Suppliers to whom they were to deliver the Ask, asdefined in the extract in [24] above. The BCMs had been provided with a list of the Tier 3 Suppliers to whom the CMs that reported to them were to deliver the Ask. CMs and BCMs had both been given a version of the Script for use by each CM in relation to each of the Tier 3 Suppliers, each of which contained the statements referred to in [25] above. Thefront page contained certain details concerning the supplier, includingthe supplier’s name, its supplier ID number, the CM and the BCM responsible forthe supplier. The second page contained the amount of the ARC rebate that was to besought from the particular supplier.

30CMs and BCMs had also been given access to a version of the BackgroundMaterials for use by each CM in relation to each Tier 3 Supplier, each ofwhich containedthe statements referred to in [25] above, the name of the supplier and the amount of the ARC rebate that was to be sought from thesupplier. CMs had been given access to revised trading terms for each Tier 3 Supplierto whom they were to deliver the Ask, which included the ongoing paymentssought by way of the ARC rebate.BCMs had been given access to revised trading terms for each Tier 3Supplier to whom the CMs who reported to them were to deliver the Ask, whichincluded the ongoing payments sought by way of the ARC rebate: Annexure 1, par 43.

(1)Had not consulted with any Tier 3 Supplier regarding the actual value of data sharing to the Tier 3 Supplier or the actual value of EOQ ordering to the Tier 3 Supplier;

(2)Had not identified or calculated any particular savings to any particular Tier 3 Supplier’s business in respect of data sharing;

(3)Had not validated the assumptions it had made about the value of EOQ ordering to any particular Tier 3 Supplier with that Tier 3 Supplier; and

(4)Had commenced negotiations with 18 of its Tier 1 and Tier 2 Suppliers about the amounts that those suppliers would pay to Coles in connection with the ARC program and only five of the 18 Tier 1 and Tier 2 Suppliers had agreed to pay any ARC rebate, and all for amounts below 0.7%.

32Coles now accepts that by reason of the matters in [31] above, it should not have asserted to any Tier 3 Supplier that a 0.7% data sharing component of the ARC rebate reflected the actual value to that Tier 3 Supplier of data sharing and should not have made an assertion to any Tier 3 Supplier about the actual value of EOQ ordering to that Tier 3 Supplier: Annexure1, par 46.

33Against that background, it is appropriate to turn to the five admitted contraventions.

2.2Contraventions

2.2.1Section 22 of the ACL

34Section 22 of the ACL (as it stoodfrom 1 January to 31 December 2011, i.e. during the ARC relevant period) extended theunconscionable conduct provisions of the ACL to business transactions. It provided,relevantly, that a person must not, in trade or commerce, inconnection with theacquisition or possible acquisition of goods from another person (otherthan a listedpublic company) engage in conduct that is, in all the circumstances, unconscionable.

35Section 22(3) (as itstood during the ARC relevant period) set out a non-exhaustive series ofconsiderations to which the Court may have regard for the purpose of determining whether Coles engaged in unconscionable conduct in relation to each of theTier 3 Suppliers the subject of the admitted contraventions. Those considerations include, relevantly:

(1)The relative strengths of the bargaining positions of Coles and each supplier: s 22(3)(a);

(2)Whether each supplier was able to understand any documents relating to theacquisition or possible acquisition of their goods by Coles: s 22(3)(c);

(3)Whether any undue influence or pressure was exerted on, or any unfair tactics were used against, each supplier by Coles in relation to the acquisition orpossible acquisition of the supplier’s goods by Coles: s 22(3)(d); and

(4)The extent to which Coles was willing to negotiate the terms and conditions of the contract with each supplier: s 22(3)(j)(i).

36Courts have for some time characterised unconscionable conduct as conduct that is clearly unfair or unreasonable, or serious misconduct: see Cameron v Qantas Airways Ltd(1995) 55 FCR 147 at 179 and Hurley v McDonalds Australia Ltd [1999] FCA 172 at [22]. Recently, in Australian Competition & Consumer Commission v Lux Distributors PtyLtd [2013] FCAFC 90 at [41] the Court stated that “unconscionability” means “something not done in good conscience”. The Court went on to describe “unconscionability” as “conduct against conscience by reference to the norms of society that is in question” and that the norm “must be understood and applied in the context in which the circumstances arise”. It is against that test or description that the conduct is to be assessed.

2.2.2Suppliers

37Coles admits that during the ARC relevantperiod, it engaged in conduct, which was, in all ofthe circumstances, unconscionable in contravention of s 22 of the ACL, in relation toeach of the Tier 3 Suppliers identified in [18] above.

38The admitted contravention for each supplier will be considered in turn. As will become apparent, Coles’ conduct in relation to the suppliers had some recurring themes and actions. However, it also adopted certain tactics in relation to particularsuppliers.

39The recurring themes can be described as follows. Coles demanded that suppliers pay rebates to it. The rebates were amounts calculated by reference to past orders: orders that had been made and delivered. Coles pressed for speedy answers to its demands, often pointing to adverse commercial consequences it could and would impose on a supplier who did not agree. That conduct was unconscionable.

2.2.2.1Austech

Introduction and conduct

40Austech manufactures a range of household consumer products under the Orange Power, Aware, Actizyme and Stain Magic brands, which it supplies primarily to supermarkets. Coles acquired ten household consumer products from Austech for sale in Coles’ retailstores. Each product was sold by Coles under brands associated withAustech. The products acquired from Austech were part of the range acquired byColes’ Homecare Business Category: Annexure 1, pars 111-112.

41During the ARC relevant period, Coles was in a substantially stronger bargaining positionthan Austech, in particular because Coles represented a significant proportion of the sales of Austech’s products, Coles determined whether it would continue to acquire grocery products from Austech and whether it would substitute grocery products it was acquiringfrom Austech with products acquired from another supplier,and due tothe matters set out in Annexure 1, par 17.

42The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars111-127: Coles’ admitted conduct prior to and during the Austech Ask, Austech’s response to the Austech Ask, Coles’admitted threat to Austech and Austech’s agreement to the Austech Ask.It is that conduct which provides the foundation for the following findings of contravention.

Finding of contravention of s 22 of the ACL

43In October 2011, Coles, in trade or commerce, in connection with the acquisition ofgrocery products from Austech, engaged in conduct that was, in all of thecircumstances, unconscionable in contravention of s22 of the ACL (as in forceduring the ARC relevant period).That unconscionable conduct involved Coles:

(1)Requiring Austech to make an agreement to pay an ongoing rebate to it, andmaking threats of commercial consequences to Austech if Austech did not, namely that Coles would (i) provide certain ranging information requested by Austech but onlyafter Austech agreed to pay the ongoingrebate and(ii)cease giving assistance to Austech from Coles’ replenishers;

(2)Refusing to take into account the reasons given to Coles by Austech as to why theARC rebate would not have the benefit to it that Coles claimed,

in all of the circumstances outlined in Annexure 1, Part III and pars 111 to 127.

44Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Austech: Annexure 1, par 113;

(2)Coles failing to disclose sufficient details to enable Austech to understand how Coles had determined the figure of 0.7% for data sharing or thefigure of 0.5% for EOQ ordering, which made up the Austech ARCrebate (Annexure 1, pars 117.3 and 121.3) andhow the Austech ARC rebate reflected the value to Austech of data sharing: Annexure 1, par 127.1;

(3)Coles exerting undue pressure and unfair tactics on Austech by:

(a)informing Austech that it was required to agree to the Austech Ask: Annexure1, par 117.2.4;

(b)making repeated requests for a response to the Austech Ask fromAustech despite the matters in (2) above: Annexure 1, par 121; and

(c)threatening Austech with commercial consequences as outlined in [43] above, if Austech did not agree to the Austech Ask;

(4)Coles incorrectly asserting that the Austech ARC rebate reflected the value toAustech of data sharing and EOQ ordering in circumstances where it should nothave made that assertion because Coles had not(Annexure 1, pars 39, 45, 117.4 and 118):

(b)identified or calculated any particular savings attributable to data sharingfor Austech’s business; and

(c)established whether the assumptions it had used to calculate the EOQordering component of the rebate reflected the actual value of EOQ ordering to Austech’s business; and

(5)Coles not conducting any informed negotiation with Austech about the value toAustech of data sharing or EOQ ordering: Annexure 1, par 127.2.

2.2.2.2Oates

Introduction and conduct

45Oates supplies mostly imported janitorial cleaning products, including chemicals, brushware and mops to Australian retailers and wholesalers. Coles acquired 35 products from Oates for sale in Coles’ retail stores. The products were sold under the Oates brand. The majority of the products Coles acquired from Oates were acquired for its Homecare Business Category: Annexure 1, pars 128-129.

46During the ARC relevant period, Coles was in a substantially stronger bargaining position than Oates, in particular because Coles represented a significant proportion of the sales of Oates’ products, Coles determined whether it would continue to acquire grocery products from Oates and whether it would substitute grocery products it was acquiring from Oates with products acquired from another supplier, and due to the matters set out in Annexure 1, par17.

47The following aspects of Coles’ conduct are set out in detail in Annexure 1, pars 131-151: Coles’ admitted conduct prior to and during the Oates Ask, Coles’ admitted follow up to the Oates Ask, Coles’ admitted escalation of the Oates Ask, Coles’ admitted threat to Oates and Oates’ agreement to the Oates Ask. It is that conduct which provides the foundation for the following findings of contravention.

Finding of contravention of s 22 of the ACL

48In October 2011, Coles, in trade or commerce, in connection with the acquisition ofgrocery products from Oates, engaged in conduct that was, in all of the circumstances,unconscionable in contravention of s22 of the ACL (as in force during theARC relevant period).

49Coles’ unconscionable conduct involved requiring Oates to make an agreement to pay an ongoing rebate to it, andmaking threats of commercial consequences to it if it did not, namely that if Oates did not sign up to ARC:

(1)This may impact on Coles’ decisionsabout ranging Oates’ products relative to other suppliers;

(2)There may be risks to promotionalactivity for Oates’ products; and

(3)Oates would be classified as a ‘transactional’ supplier, which may haveimplications for ranging,

in all of the circumstances set out in Annexure 1, Part III and pars 128 to 151.

50Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Oates: Annexure 1, par 130;

(2)Coles failing to disclose sufficient details to enable Oates to understand how Coles had determined the figure of 0.7% for data sharing or thefigure of 0.44% for EOQ ordering, which made up the Oates ARCrebate (Annexure 1, par 136.3) andhow the Oates ARC rebate reflected the value to Oates of data sharing: Annexure 1, par151.1;

(3)Coles exerting undue pressure and unfair tactics on Oates by:

(a)Pressing Oates for a response to the Oates Ask within a short period oftime: Annexure 1, pars 136.2.5, 136.2.6, 138.2, 138.3 and 143;

(b)Informing Oates that it was required to agree to the Oates Ask: Annexure 1, para 136.2.7;

(c)Making repeated requests for a response to the Oates Ask from Oates despite the matters in (2) above: Annexure 1, pars 138-140, 143 and 144; and

(d)Threatening Oates with commercial consequences (see [49] above) if Oates did not agree to the Oates Ask: Annexure 1, pars 147.2, 148 and 149.2; and

(4)Coles incorrectly asserting that the Oates ARC rebate reflected the value toOates of data sharing and EOQ ordering in circumstances where it should nothave made that assertion because Coles had not (Annexure 1, pars 39, 45 and 136.4):

(a)Consulted with Oates regarding the actual value of data sharing or EOQordering to Oates;

(b)Identified or calculated any particular savings attributable to data sharingfor Oates’ business; and

(c)Established whether the assumptions it had used to calculate the EOQordering component of the rebate reflected the actual value of EOQ ordering toOates’ business; and

(5)Coles not conducting any informed negotiation with Oates about the value toOates of data sharing or EOQ ordering: Annexure 1, par 151.2.

2.2.2.3Paton’s

Introduction and conduct

51Paton’s manufactures chocolate coated macadamia nuts and other chocolate coated confectionery for domestic and international customers. Coles acquired six chocolate coated confectionery products from Paton’s for sale in Coles’ retail stores. Five of those products were private label products, which were acquired by Coles for sale under Coles’ own brands. The products were acquired from Paton’s for its Snacks and Beverages, or ‘Impulse’, Business Category (Impulse Business Category): Annexure 1, pars 48-49.

52During the ARC relevant period, Coles was in a substantially stronger bargaining position than Paton’s, in particular because Coles represented a significant proportion of the sales of Paton’s products, Coles determined whether it would continue to acquire grocery products from Paton’s and whether it would substitute grocery products it was acquiring from Paton’swith products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.

53The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 51-67: Coles’ admitted conduct prior to and during the Paton’sAsk, Paton’s response to the Paton’s Ask, including Coles providing revised Paton’strading terms to Paton’s, Coles’admitted escalation of the Paton’s Ask, Coles’ admitted threat toPaton’s and Paton’s agreement to the Paton’sAsk. It is that conduct which provides the foundation for the following findings of contravention.

Finding of contravention of s 22 of the ACL

54In October 2011, Coles, in trade or commerce, in connection with the acquisition ofgrocery products from Paton’s, engaged in conduct that was, in all of thecircumstances, unconscionable in contravention of s22 of the ACL (as in forceduring the ARC relevant period).

55Coles’ unconscionable conduct involved requiring Paton’s to make an agreement to pay an ongoing rebate to it, and making threats of commercial consequences to it if it did not, namely that Coles:

(1)Would not promote Paton’s products;

(2)Would not acquire new products from Paton’s;

(3)Would not provide Paton’s with forecasting information that had been provided without charge prior to the requirement,

in all of the circumstances set out in Annexure 1, Part III and pars 48 to 67.

56Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Paton’s: Annexure 1, par 50;

(2)Coles failing to disclose sufficient details to enable Paton’s to understand how Coles had determined the figure of 0.7% for data sharing or thefigure of 0.55% for EOQ ordering, which made up the Paton’s ARCrebate (Annexure 1, pars 56.3, 59.4, 62 and 65.3) and how the Paton’s ARC rebate reflected the value to Paton’s of datasharing: Annexure 1, par 67.1;

(3)Coles exerting undue pressure and unfair tactics on Paton’s by:

(a)Pressing Paton’s for a response to the Paton’s Ask within a short periodof time: Annexure 1, pars 56.2.4, 56.2.5, 62.1, 65.1.2;

(b)Informing Paton’s that it was expected to agree to the Paton’s Ask: Annexure1, par 65.1.1;

(c)Informing Paton’s that the Paton’s ARC rebate was a cost of doingbusiness: Annexure 1, par 62.2;

(d)Making repeated requests for a response to the Paton’s Ask from Paton’sdespite the matters in (2) above: Annexure 1, pars 60, 62 and 65; and

(e)Threatening Paton’s with commercial consequences outlined in [55] above if Paton’s did not agree to the Paton’s Ask: Annexure 1, par 65.2;

(4)Coles incorrectly asserting that the Paton’s ARC rebate reflected the value toPaton’s of data sharing and EOQ ordering in circumstances where it should nothave made that assertion because Coles had not (Annexure 1, pars 39, 45, 56.4 and 57):

(a)Consulted with Paton’s regarding the actual value of data sharing or EOQordering to Paton’s;

(b)Identified or calculated any particular savings attributable to data sharing for Paton’s business; and

(c)Established whether the assumptions it had used to calculate the EOQordering component of the rebate reflected the actual value of EOQ ordering toPaton’s business; and

(5)Coles not conducting any informed negotiation with Paton’s about the value toPaton’s of data sharing or EOQ ordering: Annexure 1, par 67.2.

2.2.2.4Stuart Alexander

Introduction and conduct

57Stuart Alexander imports, markets and distributes branded products including chocolate, confectionery, chewing gum, salty snacks, beverages, sauces, syrups and tobacco, which it primarily supplies to supermarkets. Coles acquired goods for retail sale in Coles’ retail stores from Stuart Alexander for five different categories, including confectionery products that were acquired by Coles for its Impulse Business Category. The confectionery products that Coles acquired from Stuart Alexander were imported branded confectionery products: Annexure 1, pars 68-69.

58During the ARC relevant period, Coles was in a substantially stronger bargaining position than Stuart Alexander, in particular because Coles represented a significant proportion of the sales of Stuart Alexander’s products, Coles determined whether it would continue to acquire grocery products from Stuart Alexander and whether it would substitute grocery products it was acquiring from Stuart Alexander with products acquired from another supplier, and due to the matters set out in Annexure 1, par 17.

59The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 71-92. Coles’ admitted conduct prior to and during the Stuart Alexander Ask, Coles’ admitted escalation of the Stuart Alexander Ask, Coles’ admitted threat to Stuart Alexander, Coles’admitted provision of revised Stuart Alexander Confectionary trading terms to Stuart Alexander and Coles’ admitted further threats and escalation of the Stuart Alexander Ask. Itis that conduct which provides the foundation for the following findings of contravention.

Finding of contravention of s 22 of the ACL

60In October 2011, Coles, in trade or commerce, in connection with the acquisition ofgrocery products from Stuart Alexander, engaged in conduct that was, in all of thecircumstances, unconscionable in contravention of s22 of the ACL (as in forceduring the ARC relevant period).

61Coles’ unconscionable conduct involved requiring Stuart Alexander to make an agreement to pay an ongoing rebate to it,and making threats of commercial consequences to it if it did not, namely that Coles would not acquire new products from Stuart Alexander andwould not promote Stuart Alexander’s products,in all of the circumstances set out in Annexure 1, PartIII and pars 68 to 92.

62Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Stuart Alexander: Annexure 1, par 70;

(2)Coles failing to disclose sufficient details to enable Stuart Alexander to understand how Coles had determined the figure of 0.7% for data sharing or thefigure of 0.31% for EOQ ordering, which made up the Stuart AlexanderARC rebate (Annexure 1, pars 76.3, 80 and 84) andhow the Stuart Alexander ARC rebate reflected the value to StuartAlexander of data sharing: Annexure 1, par 92.1;

(4)Coles incorrectly asserting that the Stuart Alexander ARC rebate reflected thevalue to Stuart Alexander of data sharing and EOQ ordering in circumstanceswhere it should not have made that assertion because Coles had not (Annexure 1, pars 39, 45, 76.4 and 77):

(a)Consulted with Stuart Alexander regarding the actual value of datasharing or EOQ ordering to Stuart Alexander;

63Tru Blu manufactures, markets and supplies branded and private label carbonated (soft drink) beverages and cordials to retailers in Australia. The majority of the products that Coles acquired from Tru Blu for sale in Coles’ retail stores were private label products, which TruBlu manufactured for Coles and packaged under Coles’ own brands. These products were acquired by Coles from Tru Blu on an order-to-order basis without a fixed-term contract. The products were acquired from Tru Blu for Coles’ Impulse Business Category: Annexure1, pars 93-94.

64During the ARC relevant period, Coles was in a substantially stronger bargaining position than Tru Blu, in particular because Coles represented a significant proportion of the sales of Tru Blu’s products, Coles determined whether it would continue to acquire grocery products from Tru Blu and whether it would substitute grocery products it was acquiring from Tru Blu with products acquired from another supplier, and due to the matters set out in Annexure1, par 17.

65The following aspects of Coles’ admitted conduct are set out in detail in Annexure 1, pars 96-110: Coles’ admitted conduct prior to and during the Tru Blu Ask, Tru Blu’s response to the Tru Blu Ask, Coles’ admitted threat to Tru Blu and action by Coles, Coles’ admitted further actions by Coles and Tru Blu’s response to the Tru Blu Ask. It is that conduct which provides the foundation for the following findings of contravention.

Finding of contravention of s 22 of the ACL

66In October 2011, Coles, in trade or commerce, in connection with the acquisition ofgrocery products from Tru Blu, engaged in conduct that was, in all of thecircumstances, unconscionable in contravention of s22 of the ACL (as in forceduring the ARC relevant period).

67Coles’ unconscionable conduct involved:

(1)Requiring Tru Blu to make an agreement to pay an ongoing rebate to it, andmaking threats of commercial consequences to it if it did not, namely that Coles would not meet with Tru Blu and would not continue any contractual negotiations then on foot with TruBlu; and

(2)Refusing to take into account the reasons given to Coles by Tru Blu why the rebate would not have the benefits to it that Coles claimed,

in all of the circumstances set out in Annexure 1, Part III and pars 93 to 110.

68The circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Tru Blu: Annexure 1, par 95;

(2)Coles failing to disclose sufficient details to enable Tru Blu to understand how Coles had determined the figure of 0.7% for data sharing or thefigure of 0.1% for EOQ ordering, which made up the Tru Blu ARCrebate (Annexure 1, pars 99.4, 101 and 108.3) and how the Tru Blu ARC rebate reflected the value to Tru Blu of datasharing: Annexure 1, par 110.1;

(3)Coles exerting undue pressure and unfair tactics on Tru Blu by:

(a)Pressing Tru Blu for a response to the Tru Blu Ask within a short period of time: Annexure 1, par 99.3;

(b)Making repeated requests for a response to the Tru Blu Ask from TruBlu despite the matters in (2) above: Annexure 1, pars 104.1, 105 and 108; and

(4)Coles incorrectly asserting that the Tru Blu ARC rebate reflected the value to TruBlu of data sharing and EOQ ordering in circumstances where it should not havemade that assertion because Coles had not (Annexure 1, pars 39, 45, 99.5 and 100):

(a)Consulted with Tru Blu regarding the actual value of data sharing or EOQordering to Tru Blu;

69The parties jointly sought the making of particular orders by the Court.

70The applicable principles are well established. First, there is a well-recognised public interest in the settlement of casesunder the Act: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission(1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to thepublic interest and at least consistent with it: Australian Competition & Consumer Commissionv Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].

71Third, when deciding whether to make orders that are consented to by the parties, the Courtmust be satisfied that it has the power to make the orders proposed and that the ordersare appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commissionv Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1].Partiescannot by consent confer power to make orders that theCourt otherwise lacks the power to make:Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163.

72Fourth, once the Court is satisfied that orders are within power and appropriate, it shouldexercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand andevaluate the desirability of the settlement: Australian Competition & Consumer Commissionv Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commissionv Target Australia Pty Ltd[2001] FCA 1326at [24]; Real Estate Institute at [20]-[21]; Australian Competition & Consumer Commissionv Econovite Pty Ltd[2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commissionv The Construction, Forestry, Mining and Energy Union[2007] FCA 1370 at[4].

73Finally, in deciding whether agreed orders conform with legal principle, the Court is entitled totreat the consent of Coles as an admission of all facts necessary or appropriate to thegranting of the relief sought against it: Thomson Australian Holdings at 164.

75Where a declaration is sought with the consent of the parties, the Court’s discretion is not supplanted, but nor will the Court refuse to give effect to terms of settlement by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable: see, for example, Econovite at [11].

76However, before making declarations, three requirements should be satisfied:

(1)The question must be a real and not a hypothetical or theoretical one;

(2)The applicant must have a real interest in raising it; and

(3)There must be a proper contradictor:

Forster v Jododex at 437-8.

77In this proceeding, these requirements are satisfied. The proposed declarations relate to conduct that contravenes the ACL and thematters in issue have been identified and particularised by the parties with precision:Australian Competition & Consumer Commissionv MSY Technology Pty Ltd (2012) 201 FCR 378 at [35]. The proposed declarations contain sufficient indication of how and why the relevant conduct is a contravention of the ACL: BMW Australia Ltd v Australian Competition & Consumer Commission[2004]FCAFC 167 at [35].

78It is in the public interest for the ACCC to seek to have the declarations made andfor the declarations to be made(see the factors outlined in ACCCv CFMEU at [6]).There is a significant legal controversy in thiscase which is being resolved. TheACCC, as a public regulator under the ACL,has a genuine interest in seeking the declaratory relief andColes is a proper contradictor because it has contravenedthe ACL and is the subject of the declarations. Coles has an interest inopposing the making of them: MSYTechnology at [30].No less importantly, the declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate the ACCC’s claim that Coles contravened the ACL, assist the ACCC to carry out the duties conferred upon it by the Act (including the ACL)in relation to other similar conduct, inform the public of the harm arising from Coles’ contravening conduct anddeter other corporations from contravening the ACL.

81Sections 224(1)(a)(i) of the ACL relevantly empowers the Court, in respect ofcontraventions of provisions of Pt 2-2 (including s 22), to order the contravener topay such pecuniary penalty in respect of “each act or omission” as the Courtdetermines to be appropriate.

82The ACCC and Coles jointly submitted that the Court should make orders imposing pecuniary penalties, pursuant to s 224, upon Coles totalling $3,700,000, in respect of its five admitted contraventions of s 22 of the ACL.

2.3.3.1Factors relevant to setting a penalty

83Section 224(2) of the ACL provides that, in determining the appropriate pecuniarypenalty, the Court must have regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage sufferedas a result of the act or omission, thecircumstances in which the act or omission took place and whether the person has previously been found by a court in proceedings underCh4 or Pt5-2 of the ACL to have engaged in any similar conduct. Those mandatory considerations are non-exhaustive.

2.3.3.2Other penalty factors including approach to penalties sought by agreement of the parties

84Section 224 of the ACL came into force on 1 January 2011. It was preceded by s 76Eof the Trade Practices Act 1974(Cth) (the TPA) (now the Act) which came into force on 15 April 2010. The principles applied by this Court in determining penalties under s 76of the TPA apply to penalties under s 76E of the TPA and s 224(2) of the ACL, unlessthe context of the infringements makes it plain that cannot be so: see Global One Mobile Entertainment Pty Ltd v Australian Competition & Consumer Commission [2012] FCAFC 134 at [114]-[119].

85Recently, in Australian Competition & Consumer Commission v Renegade Gas Pty Ltd (trading as Supagas NSW) [2014] FCA 1135 at [74]-[83], I addressed the other considerations that may be relevant to an assessment of a pecuniary penalty. I adopt that analysis. In conclusion, as stated in that judgment at [83]:

I remain of the view … that the role of the Court is to assess what it would do itself based on the facts. What penalty would the Court impose that is proportionate to the gravity of the contravening conduct? There is no prescribed method. The method will invariably vary depending on the facts.

86It is against that background that I turn to consider the proposed penalties.

2.4Analysis of Proposed Penalties

87In applying those principles, the ACCC and Coles submitted that the proposed total penalty of$3.7 million is not inadequate or excessive, having regard to all relevant matters.

88The maximum penalty for a body corporate for each act or omission that relates to a provision of Pt 2-2 of the ACL, which includes s 22, is $1.1 million. In considering the maximum penalties, Coles is not liable to more than one pecuniary penalty in respect of the same conduct: s 224(4)(b) of the ACL.

2.4.1Nature, extent and duration of conduct and the circumstances in which conduct took place

2.4.1.1Extent of the conduct

89The admitted conduct occurred from April 2011 to December 2011. Itconcerned, andoccurred during the course of,Coles’ communications with each of the five suppliers. TheARC rebates (the subject of these contraventions) havecontinued to apply to the Trading Arrangements of the five suppliers throughout thethree year period since December 2011.Therefore, while the admitted contravening conduct itself occurred during a nine monthperiod in 2011, the effects of those contraventions were experienced by each of thefive suppliers from 2011 to 2014.

2.4.1.2Background circumstances relating to the contravening conduct

90Unconscionable conduct falls to be determined “in all thecircumstances”: see Section 2.2.1 above.The conduct admitted by Coles to be unconscionable and in contravention of s 22 of the ACL in relation to each of the five suppliers took place inthe context of the circumstances set out in Sections2.1 and 2.2above. Particular aspects of those circumstances should be emphasised.

2.4.1.2.1Coles general business practices and profit targets

91During the ARC relevant period, Coles set broad financial targets for its General Categoriesand Business Categories, including profit targets: see Annexure 1, par 19.Achieving profit targets was asignificant focus of Coles in the ARC relevant period, and Coles incentivised its CMs andBCMs to meet these targets by way of prizes: see Annexure 1, pars 19 and 42.6.

92One way for Coles’ CMs and BCMs to meet profit targets was by demanding or seekingadditional payments from suppliers. Coles set aside specific days for this purpose (Annexure1, par 19.3),and encouraged its CMs and BCMs to seek rebates and additional payments from suppliers.In addition to broad financial targets, Coles also set specific profit targets for particularinitiatives. One such initiative was the Tier 3 ARC rebate target: Annexure 1, pars 19 and 33.

2.4.1.2.2Development of the ARC Plan

93In or around April 2011, Coles had identified that it could increase its EBIT byidentifying opportunities for the recovery from suppliers of cost savings which Colesconsidered had been, or would be, achieved across its end to end supply chain: Annexure 1, par 21. Inabout October 2011, Coles introduced the Tier 3 ARC Plan to its CMs and BCMs andconveyed to them that the Tier 3 ARC Plan was a one-off chance for Coles to close itsprofit gap: Annexure 1, pars 41 and 42.

94The Tier 3 ARC Plan, as developed by Coles, was a strategy for Coles to close what it described as a “profit gap” whichincluded the following features:

(1)Seeking payments from its suppliers by way of an ongoing rebate in thesuppliers’ Trading Arrangements: Annexure 1, pars 20-23 and 28;

(2)The division of its suppliers into “tiers”, with Tier 3 comprising suppliersconsidered by Coles to be smaller and for whom Coles’ documents stated thatColes represented a “very significant part” of the supplier’s business: see Section 2.1.1 above and Annexure 1, pars 24-27;

(3)Modification of the method by which Coles would seek payment of the ARCrebate from suppliers, by reference to the size of the supplier: Annexure 1, pars 34-35;

(4)Pre-determined targets of the amount of money it wanted to obtain fromsuppliers, including $16 million from the Tier 3 Suppliers: Annexure 1, par 33;

(5)Attributing values to the ARC rebate to be paid by each supplier to Coles butwithout having identified or calculated any such value to any particular Tier 3 Supplier: Annexure 1, pars 31 and 32;

(6)Coles’ CMs and BCMs seeking the ARC rebate from its Tier 3 Suppliers based onthe values Coles had attributed to the ARC rebate: Annexure 1, pars 56.1, 76.1, 98, 117.1 and 136.1; and

(7)Conveying those instructions to CMs and BCMs, in the context of the importanceof the Tier 3 ARC Plan to Coles: Annexure 1, pars 41-44.

2.4.1.2.3Delivery of the ARC instructions

95The ARC instructionsincluded the following features (see Section 2.1.2 above):

(1)They conveyed a focus on the importance of the ARC Plan to Coles’ profits,including by BCMs and GMs (who are Coles’ Senior Managers);

(2)They conveyed that the CMs were not to negotiate the Ask;

(3)They conveyed that there was a sense of urgency about having each supplieragree to new trading terms incorporating the ARC rebate within a number ofdays; and

(4)They did not provide the CMs and BCMs with sufficient information about howColes had attributed the values to the ARC rebate, such that those CMs andBCMs were then unable to provide adequate explanations of the ARC rebate tothe supplier to whom they delivered the Ask.

2.4.1.3Relationship of the background circumstances to specific instances of unconscionableconduct

96Coles’ practices, plans and instructions were deliberate, orchestrated and relentless and formed the circumstances in which the unconscionable conduct against the five specific suppliers occurred.

2.4.1.4Nature of the conduct

97The conduct had common elements which are factorsrelevant to the determination of the appropriate penalty.

98The five suppliers the subject of the admitted contraventions from whom Colessought payment of the ARC rebate:

(1)Were significantly smaller than Coles (all had annual revenue of lessthan a fraction of 0.1% of Coles’ annual revenue);

(2)Were highly dependent on their ongoing sales to Coles for their business to remain viable;

(3)Would have experienced significant detriment if Coles had ceased, orsubstantially decreased, its trading with them;

(4)Were provided with inadequate and incorrect information by Coles inrelation to the value to them of the ARC rebate;

(5)Did not agree with, or could not understand, the value that Coles had attributed to the ARC rebate;

(6)Were pressured by Coles to agree to the ARC rebate;

(7)Feared the impact on their ongoing dealings with Coles if they refused topay the ARC rebate, and felt that they had no choice but to agree to theARC rebate; and

(8)Commenced paying, and continued to pay, the ARC rebate, despite thefact that they did not consider, at the time they agreed to the ARCrebate, that ARC had the value to their business as represented byColes.

99In relation to these suppliers, Coles was motivated by profit in seeking agreement to the ARC rebate, did not convey to the suppliers that it was optional for them to agree to the ARC rebate, did not provide the suppliers with adequate information, or providedthem with incorrect information, about the ARC rebate, andthreatened commercial consequences as leverage to obtain the agreement of the suppliers.

100In addition to those common elements, each supplier was subjected to particular threats of commercial consequences asfollows:

(1)In relation to Austech, Coles would cease giving support to the supplier from Coles’ replenishers and would provide certain ranging information requested by Austechbut only after it agreed to pay the ongoing ARC rebate: see Section 2.2.2.1 above;

(2)In relation to Oates, if it did not agree to the ARC:

(a)this may impact on Coles’ decision aboutthe ranging of Oates’ products relative to other suppliers;

(b)there may be risks to promotional activity for Oates’ products;

(c)Oates would be classified as a ‘transactional’ supplier, which may haveimplications for ranging;

(3)In relation to Paton’s and Stuart Alexander:

(a)Coles would not promote the supplier’s products;

(b)Coles would not acquire new products from the supplier;

(4)In relation to Paton’s, Coles would not provide it with forecasting information that it had previously beenprovided with, without charge, prior to the Paton’s Ask;

(5)In relation to Tru Blu, Coles would not meet with it about its business andColes would not continue contractual negotiations then on foot with it.

101The ACCC submitted, Coles accepts and the Court finds that each of those acts in [100], inall of the circumstances, was contrary to conscience and in contravention of s22 of the ACL.

102Coles’misconduct was serious. I reject Coles’ submission that these contraventions are somehow distinguishable,or of a less serious nature,because they did not involve vulnerable consumers. Coles’ conduct did not involve vulnerable consumers. Coles’ conduct did involve vulnerable suppliers –some of Coles’ smaller suppliers: seeSections 2.2.1 and 2.2.2 above. Indeed, their lack of size was one of the reasons why they were classified as Tier 3 Suppliers and targeted by Coles. These vulnerable suppliers were up against Coles – the second largest retailer of grocery products in Australia. It is unsurprising that Coles admits that it had substantially stronger bargaining power.It is difficult to envisage circumstances involving a larger disparity in bargaining power.

103Coles’ conduct was also serious because the admitted unconscionable conduct was difficult for the ACCC to detect due tothe reluctance of smaller suppliers to report complaints about, and assist theACCC with investigations into, the conduct of major retailers, when they rely on these retailers for the ongoing viability of their businesses. The contraventions also showed a failure of Coles’ internal compliance systems andprocesses, which had the potential to impact a number of suppliers with whomrepresentatives of Coles had dealings.

104Coles’ misconduct was serious, deliberate and repeated. Coles misused its substantial bargaining power. Its conduct was “not done in good conscience”.

105Coles accepted that in its dealings with the five suppliers it treated them in a mannerinconsistent with acceptable business practice, was not respectful of the suppliers’ needs for full and timely transparency, and nor did it properly respect the responsibilityattached to Coles’ bargaining power.

106The ACL provides for significant penalties for these contraventions. It is a matter for the Parliament to review whether the maximum available penalty of $1.1 million for each contraventionof Pt 2-2 of the ACL by a body corporate is sufficient when a corporation with annual revenue in excess of $22 billion acts unconscionably. The current maximum penalties are arguably inadequate for a corporation the size of Coles.

2.4.2Amount of loss caused and profit gained

107Where it is easy to imagine detriment to consumers, the Courts have stated that the absence ofevidence of loss or damage to consumers constitutes a factor in mitigation of penalty: Singtel Optus Pty Ltd v Australian Competition & Consumer Commission [2012]FCAFC 20 at [58]-[59] and the case there cited.That principle applies equally in assessing detriment to suppliers. Of course, the inability to quantify financial loss caused to the suppliers by thecontraventions does not mean that no loss or harm has been suffered: see Australian Competition & Consumer Commissionv Global One Mobile Entertainment Limited [2011] FCA 393 at [135].

108Here, it was common ground that the five affected suppliers received access to the Supplier Portaland had their products ordered using EOQ ordering. However, it is not known whether those suppliers actually received the benefits alleged to exist by Colesthroughout the period that those suppliers were making the demanded payments to Coles.

109Coles’ wrongful conduct denied the five suppliers theability to decide not to pay the ARC rebate, as their choices were to pay the additionalrebate or be subject to commercially detrimental consequences, which would havelikely caused them loss. That is unconscionable. The full extent of any loss or damage caused to the five suppliers by Coles’ unconscionable conduct has not been quantified. However, it can and should be inferred that Coles’ unconscionable conduct had a detrimental effect on each of the five suppliers.

2.4.3Whether the respondent has engaged in similar prior conduct

110Coles has not previously been alleged by the ACCC, nor been found, to have engagedin unconscionable conduct. Coles has, on a previous occasion, been found by theCourt to have engaged in conduct in contravention of the ACL. These contraventionsrelated to claims made by Coles that partially baked bread sold in its stores was freshlybaked, or baked that day, which were held to be misleading and deceptive conduct in contravention of s 18, false or misleading representations about goods in contravention of s 29 and misleading conduct as to the nature of goods in contravention of s33: Australian Competition & Consumer Commissionv Coles Supermarkets Australia Pty Limited (No 2) [2014] FCA 1022. It is necessary to add to that analysis the findings of contravention in relation to the Claims Proceeding in Section 3 below. They cannot be, and should not, be ignored.

2.4.4Size of contravener, including market share, and its financial position

111These matters have been addressed earlier: see Section 2.1.1 above.

112During the ARC relevant period, Coles was the secondlargest supplier of retail groceryproducts to customers in Australia supplying approximately 30% of the grocery products supplied for retail sale to customers in Australia and, together with Woolworths, supplied approximately 60-70% of the grocery products supplied for retail sale to customers in Australia: Annexure1, par 9 and 10. Coles operated retail stores in every Australian State and mainland Territory.During the 2011 to 2012 financial year, Coles’ annual sales revenue derived fromColes’ retail supermarkets was about $23.3 billion and its profits were increasing.

113Coles’ commercial activities substantially permeate the commercial and consumer life of the public. It is appropriate to take those facts into account in determining an appropriate level of penalty: Australian Competition & Consumer Commissionv Australian Safeway Stores Pty Ltd(1997) ATPR 41-562 at 43,815-6.

2.4.5The deliberateness of the contravening conduct

114The conduct in relation to each of the five suppliers was deliberate and was engagedin within the context of the broader ARC Program and the Tier 3 ARC Plan: see [5] and Section 2.1.2 above.

2.4.6Involvement of senior employees or management

115The ARC Program and Tier 3 ARC Plan have been described earlier: see [5] and Section 2.1.2. They were approved Coles’ corporate strategies. The contravening conduct in relation to the five suppliers involved Coles’ CMs andBCMs. BCMs are part of Coles’ senior management: Annexure 1, par 13.

116Coles does not admit that any other members of Coles’ senior management engaged in theconduct the subject of the contraventions. However, Coles admits that its GMs andBCMs (who are Coles’ Senior Managers), at least were aware of, and encouraged, the practice of seeking money from suppliers to meet profit targets, endorsed the ARC plan, gave the ARC instructions to Coles’ CMs andBCMs and did not take adequate steps to prevent the contravening conduct by CMs andBCMs.

2.4.7Culture of compliance and corrective measures in response to contravention

117At the time of the contravening conduct, Coles had trade practices compliance policies in place. They did notprevent the conduct occurring. The conduct of Coles’ CMs and BCMs the subject ofthe admitted contraventions indicates that the programs Coles had in place wereinadequate.Coles accepts that significant penalties are both a necessary and sufficient deterrent.

118As these reasons for judgment record, Coles and the ACCC have negotiated a resolution of these proceedings. The ACCC now holds the view that Coles has accepted, at the most senior level of its business, that the conductthe subject of the contraventions was unacceptable and that there is genuine contrition at that level of the company regarding Coles’ treatment of its smaller suppliers. At the hearing, Senior Counsel for Coles informed the Court that Coles did accept, at the most senior level of its business, that the contravening conduct was unacceptable and involved serious contraventions, and Coles was genuinely contrite about its treatment of its suppliers.

119It is important to record that Coles has undertaken to the ACCC to have an independent arbiter review its conduct with the Tier 3 Suppliers and assess their entitlement to refunds of any relevant payment. That undertaking, which is Annexure 3 to these reasons for judgment, is addressed further in Section 2.4.8 below.

120The ACCC also acknowledged that Coles has taken a number of steps to address thefailures that led to these contraventions including:

(1)A best practice compliance framework and additional training to ensure Coles’ suppliers are treated in an open and fair manner;

(2)A Supplier Charter, which sets out public commitments made by Coles inrelation to how it will deal with suppliers;

(3)A dispute resolution framework, which provides suppliers with the right toraise concerns on a confidential basis with an independent arbiter; and

(4)Public support for a Food and Grocery Code.

121Coles provided the Court with a copy of documents which recorded the matters referred to in [120] above. I have read those documents. I accept that on their face they record that Coles has taken the steps outlined. It is by no means clear that the steps address the failures that led to the contraventions because what led to them was not explained.

2.4.8Co-operation

122Coles has cooperated with the ACCC during the course of its investigation and inrelation to the resolution of the proceeding.

123Coles also has offered to the ACCC (and the ACCC has accepted) the statutoryundertaking set out in Annexure 3 to these reasons for judgment in respect of the Tier 3 Suppliers. Thatundertaking is an important part of the resolution of this proceeding. As the ACCC submitted, this undertaking facilitated the confinement of these proceedings with the result that the ACCC no longer considers it necessary to pursue orders to protect the interests of all theTier 3 Suppliers listed in Annexure A to that undertaking.

124This cooperation,and Coles’ agreement to resolve the proceedings, has saved the ACCC and the Court(and hence ultimately the community) the cost and burden of a long, complex andexpensive case.In those circumstances, Coles is entitled to a discount on thepenalty that otherwise would have been appropriate, for its voluntary acknowledgmentof liability and cooperation. Had Coles not cooperated, and had it been found to havecommitted the alleged contraventions following a contested hearing, the ACCC wouldhave sought and the Court would have imposed significantly higher penalties.

2.4.9Maximum penalties and one transaction principle

125As noted above, the maximum penalty for a body corporate for each act or omission that relates to a provision of Part 2-2 of the ACL, which includes s 22, is $1.1 million: Item 1 of s 224(3) of the ACL.

126Courts are required to pay careful attention to maximum penaltieswhen imposing penalties becausethe Parliament has legislated for them, because they invite comparison between the worst possible case and thecase before the court at the timeand, in that regard they provide a yardstick,taken and balanced with all of the other relevant factors: Markarian v The Queen (2005) 228 CLR 357 at [31].

127In considering the maximum penalties, Coles is not liable for more than one pecuniarypenalty in respect of the same conduct: s 224(4)(b) of the ACL. In determining what constitutes the same conduct, regard may be had to the “onetransaction” or “one course of conduct” principle as explained by the majority of the Full Court in Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 39 at [39] and [41]:

The principle recognises that where there is an interrelationship between the legal andfactual elements of two or more offences for which an offender has been charged, caremust be taken to ensure that the offender is not punished twice for what is essentially thesame criminality. That requires careful identification of what is “the same criminality” andthat is necessarily a factual specific inquiry.

…

In other words, where two offences arise as a result of the same or related conduct that isnot a disentitling factor to the application of the single course of conduct principle but areason why a Court may have regard to that principle, as one of the applicablesentencing principles, to guide it in the exercise of the sentencing discretion. It is a tool ofanalysis which a Court is not compelled to utilise.

(Citations and emphasis omitted.)

128The five admitted contraventions of s22 of the ACL each involve discreteconduct against five individual suppliers. It is appropriate that a discrete penalty is imposed for eachadmitted contravention.

2.4.10Identifying the penalties for particular contraventions

129Having regard to all of those factors, I accept that thefollowing penalties for each contravention are appropriate and they are imposed in relation to:

(1)Austech, in the sum of $700,000;

(2)Oates, in the sum of $800,000;

(3)Paton’s, in the sum of $800,000;

(4)Stuart Alexander, in the sum of $700,000;

(5)Tru Blu, in the sum of $700,000.

130These penalties provide a significant mark of the Court’s disapproval for the wrongdoingassociated with each course of conduct (when examined against the statutorymaximum for a single breach). It also makes appropriate allowance for the variousmitigating features identified above.

131The ACCC submitted, and Coles accepted, that the threats made to Oatesand Paton’s were the more serious of thethreats made against the five suppliers, as they involved threats to cease existingagreements with those suppliers, which would significantly impact the supplier’sbusiness and ability to supply products to Coles in the future. Thehigher penalties inrelation to Oates and Paton’s reflect this and are appropriate.

2.4.11Totality principle

132In determining the appropriate penalty, it is also relevant to take into account the “totality principle”. Put simply, the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,169. That principle applies to civil penalties: Australian Safeway Stores Pty Ltd at 43,817.

2.4.12Conclusion on appropriate penalty

133In all these circumstances, taking into account the factors relevant to setting a penaltyas well as applying the totality principle, the total pecuniary penalties for Coles of $3,700,000 areappropriate for the admitted contraventions. That sum should be paid to the Commonwealth within 30 days.

2.5Costs

134Coles agreed to pay $1 million towards the ACCC’s costs of andincidental to this proceeding within 30 days of the Court’s order. That order will be made.

3.VID 609 OF 2014 – THE CLAIMS PROCEEDING

3.1Background

135The following summary is sourced from, and cross referenced to, the SoAFA in Annexure 2. As will be apparent, it repeats certain elements of the SoAFA filed in relation to the ARC Proceeding (see Annexure 1). Where the common material has been addressed in the context of the ARC Proceeding, the earlier analysis is identified and cross referenced to Annexure 2.

136The circumstances relevant to the conduct in the Claims Proceeding relate to the period from about December 2010 to January 2012 but the conduct the subject of the admitted contraventions occurred from June 2011 to about December 2011 (Claims relevant period).

137The Tier 3 Suppliers the subject of the Claims Proceeding were:

(1)Austech;

(2)Oates;

(3)Colonial Farm (Aust.) Pty Ltd (Colonial Farm);

(4)Baview Seafoods Pty Ltd (Bayview); and

(5)Benny’s Confectionary Pty Ltd (Benny’s),

(collectively, the Claims Suppliers).

138Coles acquired grocery products for retail sale from the Claims Suppliers pursuant to Trading Arrangements negotiated between Coles and each supplier: see Section 2.1.2 above and Annexure 2, par 13. The Claims Proceeding concerns unconscionable conduct where Coles sought payments from the Claims Suppliers outside of the Trading Arrangements. Thepayments were for so called profit gaps, waste and markdowns, and short or late deliveries and were deducted by Coles from monies due to be paid to that supplier for products that it had already supplied to Coles. Related conduct in relation to “deferred deals” and unauthorised withholding or retention of money was also unconscionable as outlined below.

3.1.1Coles’ market share and power

139Coles’ market share and power during the Claims relevant period is the same as that considered in Section 2.1.1 above: see Annexure 2, pars 4-12. The Claims Suppliers had, during the Claims relevant period, total annual revenue of less than 0.5% of Coles’ total annual revenue.

3.1.2Coles’ Trading Arrangements

140As with the ARC Proceeding, most of the conditions relating to the acquisition by Coles of grocery products from a supplier, including whether Coles would continue to acquire products from that supplier, were determined by Coles: Annexure 2, par 16.

3.1.3Coles’ Business Practices

141During the Claims relevant period, Coles continued to set sales and profit targets for its General Categories and Business Categories, and encouraged and/or required its CMs and BCMs to meet these profit targets, including by engaging in three practices – in relation to profit gaps, waste and markdowns and penalties for short or late deliveries (the Claims Proceeding Practices). It also awarded prizes to its CMs and BCMs for meeting profit targets and set aside days which were referred to within Coles as “Profit Day” or “Perfect Profit Day” and set targets for Business Categories of money to be “secured” by the Business Categories from suppliers, including for the Claims Proceeding Practices: Annexure 2, par 18. Each of these practices will be considered in turn.

3.1.3.1Profit Gaps

142Coles expected its profit in respect of a supplier’s products to increase in line with a supplier’s sales growth. If Coles’ profit on a supplier’s product was growing behind the supplier’s sales to Coles, Coles referred to the difference between the supplier’s sales growth and Coles’ profit growth as a profit gap: Annexure 2, par 19.

143Coles knew that profit gaps in respect of any particular product could be caused by Coles’ own acts and omissions and by other matters which were largely or entirely outside the control of suppliers. That did not deter Coles. Instead, during the Claims relevant period, Coles encouraged and/or required its CMs and BCMs to seek payments or other funding from suppliers in order to make up purported profit gaps: Annexure 2, pars 20-21.

3.1.3.2Waste and Markdowns

144During the Claims relevant period, Coles recorded what it claimed to be the cost to it of products that Coles acquired from a supplier that were identified as lost, damaged or unfit for sale while in Coles’ retail stores (waste) and the cost to it of Coles’ employees or agents reducing, or marking down, the price in Coles’ retail stores of products Coles acquired from a supplier (markdowns): Annexure 2, par 22.

145As was the case with profit gaps, Coles knew that waste and markdowns in respect of any particular product could be caused by its own acts or omissions rather than any act or omission by the supplier of that product. Again, that did not deter Coles. Instead, during the Claims relevant period, Coles encouraged and/or required its CMs and BCMs to seek payments from suppliers on the premise that Coles had recorded waste or markdowns for the supplier’s products: Annexure 2, pars 23-24.

3.1.3.3Short or Late Deliveries

146During the Claims relevant period, Coles determined that it would impose “penalties” or “fines”, in the form of monetary penalties, on suppliers that Coles had recorded as not delivering the products that Coles had ordered from them on time and in full in accordance with the order placed by Coles (short or late deliveries): Annexure 2, par 25.

147Coles encouraged and/or required its CMs and BCMs to seek those monetary penalties but those monetary penalties were not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of the short or late delivery andwhere short or late deliveries may not lead to any loss to Coles: Annexure 2, par 26.

3.2Contraventions

3.2.1Section 22 of the ACL

148This provision has been addressed earlier: see Section 2.2.1 above. Section 22 of the ACL was in the same form during the ARC relevant period and the Claims relevant period.

3.2.2Suppliers

149Coles admits that during the Claims relevant period it engaged in conduct which was, in all the circumstances, unconscionable in contravention of s 22 of the ACL (as it stood at the time), in relation to each Claims Supplier. The admitted contraventions for each Claims Supplier will be considered in turn. Again, as will become apparent, Coles’ conduct has some recurring themes and actions. However, it also adopted certain tactics in relation one or more of the Claims Suppliers.

3.2.2.1Austech

Introduction and conduct

150The products Austech manufactures and supplied to Coles are summarised in Section 2.2.2.1 above. During the Claims relevant period, Coles was in a substantially stronger bargaining position than Austech: see Section 2.2.2.1 above and Annexure 2, par 29.

151The following aspects of Coles’ admitted conduct are set out in detail in Annexure 2, pars 30-78: Coles’ admitted purported profit gap claims, Coles’ admitted claims for retrospective waste payment, Coles’ admitted conduct in seeking and having Austech agree to the deferred deal and then refusing to end the deferred deal. It is that conduct which provides the foundation for the following findings of contravention.

Findings of contravention of s 22 of the ACL

152In June 2011 (in relation to the profit gap and retrospective waste claims) and from July to November 2011 (in relation to the deferred deal conduct), Coles in connection with the acquisition of grocery products from Austech engaged in conduct that was, in all the circumstances, unconscionable resulting in three separate contraventions of s 22 of the ACL (as in force during the Claims relevant period).

Profit gap

153The unconscionable conduct towards Austech which related to the profit gap involved Coles demanding that Austech make payments of $25,845 and $15,516.74 to it in relation to profit gaps, when the payments were not the subject of prior agreement between Coles and Austech and the payments were attributable to issues that arose before Austech owned the relevant product, in all of the circumstances set out in Annexure 2, Part III and pars 27 to 48.

154Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Austech: Annexure 2, par 29;

(2)Coles knew or ought to have known it had no reasonable basis to believe that it was entitled to seek the payments: Annexure 2, pars 33, 39.2, 39.5, 40.1, 41 and 44.2;

(3)Coles failing to disclose sufficient details to enable Austech to understand the basis upon which the demands for payments were made, and how each of the Austech purported profit gaps were calculated and were caused, despite requests for such information: Annexure 2, pars 31.3, 34.3, 35.1, 36.5, 38.1, 42.2 and 43.2;

(4)Coles exerting undue pressure on Austech by pressing Austech for an urgent response to Coles’ demands for payments (Annexure 2, pars 35.3, 39.7 and 43.5) and asserting an entitlement to a higher payment for a profit gap, which it had no reasonable basis to believe it was entitled to, if Austech did not agree to make the payments referred to in [153] above (Annexure 2, pars 43.3, 44.2 and 45); and

(5)Coles not being willing to negotiate the payments, including the amount or whenColes would withhold the money: Annexure 2, pars 31.2, 39.6, 43.4, 45, 46.4, 47 and 48.

Retrospective waste

155The unconscionable conduct towards Austech which related to retrospective waste involved Coles demanding that Austech make a payment of $5,700 to it in relation to retrospective waste and using a purported profit gap claim as leverage in negotiations,in all of the circumstances set out in Annexure 2, Part III and pars 27 to 29 and 49 to 58.

156Those circumstances were similar to those identified earlier in relation to the profit gap claim and included:

(1)Coles being in a substantially stronger bargaining position relative to Austech: Annexure 2, par 29;

(2)Coles knew or ought to have known it had no reasonable basis for assertingan entitlement to seek the payment: Annexure 2, pars 52 and 57.1;

(3)Coles failing to disclose sufficient details to enable Austech to understand thecauses of waste, what contribution, if any, Austech had made to the causes ofwaste, the basis upon which the demands were made or how the payment wascalculated: Annexure2, pars 51.1, 53 and 57.2;

(4)Coles exerting undue pressure on Austech by pressing Austech for an urgent response to Coles’ requests forpayments(Annexure 2, pars 50.3 and 57) andasserting an entitlement to a payment for a profit gap, which it had noreasonable basis to believe it was entitled to, if Austech did not agree tomake the payment referred to in [155] above: Annexure 2, pars 54-57; and

(5)Coles not being willing to negotiate the payments, including the amount: Annexure 2, pars 50.1, 53, 54 and 58.

Deferred deal

157During the Claims relevant period, Coles used the term “deferred rebate” to refer to a rebate paid by a supplier to Coles that was calculated per unit of a supplier’s product and would be in effect for a certain period of time or would apply to a certain number of units of product.

158During the Claims relevant period, Coles conducted a range review in relation to household cleaning products that it acquired from its suppliers for sale in Coles’ retail stores. Followingthat review, Coles advised Austech that its Shower Cleaner line was to be deleted, and Coles required Austech to fully fund the markdown of that product line.

159Following a request from Austech, Coles agreed not to delete Shower Cleaner from Coles’ retail stores. Coles informed Austech that in order for Coles to continue to acquire products from Austech, Coles needed to improve its profit margin on those products, and required a deferred rebate from Austech.

160On 25 August 2011, Austech indicated to Coles that it was financially difficult for Austech to make changes to improve Coles’ profit margin, partly because Austech had not increased its price to Coles for a number of years, despite an increase in the costs of essential raw materials. Notwithstanding that difficulty, after informing Coles that Austech considered it was necessary for Austech to have its products available for sale in Coles’ retail stores, Austech agreed to offer temporary deferred rebates on three of its product lines to improve Coles’ profit margin (the Austech deferred deal).

161The unconscionable conduct towards Austech which related to the Austech deferred dealinvolved Coles refusing to end the Austech deferred deal andcease deducting payments pursuant to that agreement, in all of the circumstances setout in Annexure 2, PartIII and pars 27 to 29 and 59 to 78.

162Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Austech,and particularly in relation to the relevant product: Annexure 2, pars 29 and 62;

(2)Coles being informed that it was financially difficult for Austech to make the payments for the Austech deferred deal: Annexure 2, par 67;

(3)Coles using unfair tactics by giving assurances that the Austech deferred deal wouldconclude on the agreed date in the context of a request for that assurance fromAustech when Austech was at the same time being asked by Coles to consider aseparate rebate being sought by Coles for the ARCrebate, and then refusing to end the Austech deferred deal (Annexure 2, pars 71-75); and

(4)Coles not being willing to negotiate with Austech about the Austech deferred deal: Annexure2, pars 75 and 78.

3.2.2.2Oates

Introduction and conduct

163The products Oates manufactures and supplied to Coles are summarised in Section 2.2.2.2 above. During the Claims relevant period, Coles was in a substantially stronger bargaining position that Oates: see Section 2.2.2.2 above and Annexure 2, par 81.

164Coles’ admitted purported profit gap claims and unauthorised withholding and retention of money is set out in detail in Annexure 2, pars 82-110. It is that conduct which provides the foundation for the following findings of contravention.

Findings of contravention of s 22 of the ACL

165In June 2011 (in relation to the profit gap claims) and from July to December 2011 (inrelation to the unauthorised withholding and retention of money), Coles in connection with the acquisition of grocery products from Oates engaged in conduct that was, in all the circumstances, unconscionable resulting in two separate contraventions of s 22 of the ACL (as in force during the Claims relevant period).

Profit gap

166The unconscionable conduct towards Oates which related to the profit gap involved Coles demanding and processing a payment for a purported profit gap of $246,000 towards Coles’ profit, which was outside previously agreed terms and conditions, and without the agreement of Oates, in all of the circumstances set out in Annexure 2, Part III and pars 79 to 93.

167Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Oates: Annexure 2, par 81;

(2)Coles knew or ought to have known it had no reasonable basis for asserting an entitlement to seek the payment (Annexure 2, par 86) because, amongst other things, the payments were not the subject of prior agreement between Coles and Oates (Annexure 2, par 82) and Coles knew that a substantial cause of the profit gap was due to the unilateral actions taken by Coles: Annexure 2, pars 85.3 and 87.3;

(3)Coles failing to disclose sufficient details to enable Oates to understand the basis upon which the demands were made, and how the Oates purported profit gap was calculated and was caused, despite requests for such information: Annexure 2, pars83.3, 88-91 and 92.1; and

(4)Coles exerting undue pressure and using unfair tactics on Oates by pressing Oates for an urgent response to Coles’ requests for payments (Annexure 2, pars 84.2 and 89.4), by informing Oates that Coles would not work collaboratively with Oates for the next year if Oates did not make the payment and by processing the payment without Oates’ approval: Annexure 2, par 89.2; and

(5)Coles not being willing to negotiate the payment, including when Coles would withhold the money: Annexure 2, pars 83.2, 85, 87, 89.1 and 93.

Unauthorised withholding and retention of money

168The unconscionable conduct towards Oates which related to the unauthorised withholding and retention of money involved Coles refusing to repay, and retaining, the monies referred to in relation to the profit gap above, in all of the circumstances set out in Annexure 2, PartIII and pars 79 to 81 and 94 to 110.

169Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Oates: Annexure 2, par 81;

(2)Coles knew or ought to have known it had no lawful entitlement to withhold and retain the money: Annexure 2, pars 94-99 and 102.2;

(3)Coles exerting undue pressure and using unfair tactics on Oates by failing to return the money that it had withheld, without agreement or approval, from money due to Oates despite repeated requests from Oates for that to occur (Annexure 2, pars 97-99, 102, 105 and 107) and implying that the issue needed to be resolved so that Oates and Coles could continue their commercial relationship: Annexure 2, par 100.

3.2.2.3Colonial Farm

Introduction and conduct

170Colonial Farm manufactures “value-added” protein products such as meatballs or chicken kievs, which it supplies to retailers and other customers. Coles acquired approximately 11frozen processed food products from Colonial Farm for sale in Coles’ retail stores. Three products were private label products, which were acquired by Coles for sale under Coles’ own brands. The products that Coles acquired from Colonial Farm were acquired by Coles for its Frozen Business Category and were supplied by Colonial Farm to Coles with a minimum shelf life of at least 12 months: Annexure 2, pars 111-2.

171During the Claims relevant period, Coles was in a substantially stronger bargaining position than Colonial Farm, in particular because Coles represented a significant proportion of the sale of Colonial Farm’s products, Coles determined whether it would continue to acquire grocery products from Colonial Farm and whether it would substitute grocery products it was acquiring from Colonial Farm with products acquired from another supplier,and due to the matters set out in Annexure 2, par 16.

172Coles’ admitted contravening conduct is set out in detail in Annexure 2, pars 114-138. It is that conduct which provides the foundation for the following findings of contravention.

Findings of contravention of s 22 of the ACL

173In October and November 2011, Coles, in connection with the acquisition of grocery products from Colonial Farm, engaged in conduct that was, in all of the circumstances, unconscionable, resulting in a contravention of s 22 of the ACL (as in force during the Claims relevant period).

174The unconscionable conduct involved requiring that Colonial Farm agree to pay for 100% of the cost of waste in relation to its products, when Coles was aware that Colonial Farm was in financial difficulty (Annexure 2, par 121.2) and when Coles did not take into account Colonial Farm’s explanation that its products were not appropriate for a 100% waste agreement (Annexure 2, par 123.2), in all of the circumstances set out in Annexure 2, Part III and pars 111 to 138.

175Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Colonial Farm: Annexure 2, par 113;

(2)The effect of requiring Colonial Farm to agree to the 100% waste agreement was that Colonial Farm indemnified Coles against all of the purported costs of waste or markdowns, including those that were caused by Coles and were outside the control of Colonial Farm: Annexure 2, pars 115 and 130.3;

(3)Coles failing to disclose sufficient details, despite requests for such information, toenable Colonial Farm to understand the causes of waste and markdown, what contribution, if any, Colonial Farm had made to the causes of waste and markdown and the basis upon which Coles required the waste agreement: Annexure 2, pars 117, 123.1 and 125-130;

(4)Coles exerting undue pressure on Colonial Farm by pressing Colonial Farm for a response to Coles’ requests for the 100% waste agreement (Annexure 2, pars 125.4, 128.2 and 129.4), by informing Colonial Farm that Coles required Colonial Farm to agree to a 100% waste agreement (Annexure 2, pars 122.1, 125.2, 129.3 and 133.2) and by inferring that Colonial Farm’s future business with Coles depended on Colonial Farm agreeing to the waste agreement: Annexure 2, pars 122.2 and 125.3; and

(5)Coles not being willing to negotiate with Colonial Farm about the agreement without also indicating that Coles required Colonial Farm to pay another unrelated rebate: Annexure 2, pars 133 and 136.

3.2.2.4Bayview

Introduction and conduct

176Bayview manufactures and supplies “value-added” gluten free and fish protein products to retailers and other customers. The goods Coles acquired from Bayview were frozen food products, with a long shelf life. They were acquired by Coles for its Frozen Business Category: Annexure 2, pars 139-140.

177During the Claims relevant period, Coles was in a substantially stronger bargaining position than Bayview, in particular because Coles represented a significant proportion of the sale of Bayview’s products, Coles determined whether it would continue to acquire grocery products from Bayview and whether it would substitute grocery products it was acquiring from Bayview with products acquired from another supplier, anddue to the matters set out in Annexure 2, par 16.

178By October 2011, Coles was aware that Bayview was suffering financial hardship, partly as a result of the terms of its trading relationship with Coles: Annexure 2, par 142.

179Coles’ admitted claim for a 100% waste agreement and its admitted imposition of a penalty for late delivery is set out in detail in Annexure 2, pars 143-169. It is that conduct which provides the foundation for the following findings of contravention.

Findings of contravention of s 22 of the ACL

180In October and November 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Bayview, engaged in conduct that was, in all of the circumstances, unconscionable, resulting in two separate contraventions of s 22 of the ACL (as in force during the Claims relevant period). That conduct related to a 100% waste management agreement and the imposition of a penalty for late delivery.

100% waste agreements

181The unconscionable conduct towards Bayview in relation to the 100% waste agreement involved Coles requiring that Bayview agree to pay for 100% of the cost of waste in relation to its products, when Coles was aware that Bayview was in financial difficulty (Annexure 2, par 142) and when Coles did not take into account Bayview’s explanation of the cause of the waste (Annexure 2, par 146.1), in all of the circumstances set out in Annexure 2, Part III and pars 139 to 152.

182Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Bayview: Annexure 2, para 141;

(2)The effect of requiring Bayview to agree to the 100% waste agreement was that Bayview indemnified Coles against all of the purported costs of waste or markdowns, including those that were caused by Coles and were outside the control of Bayview: Annexure 2, par 115;

(3)Coles failing to disclose sufficient details, despite requests for such information, to enable Bayview to understand the causes of waste, what contribution, if any, Bayview had made to the causes of waste and the basis upon which Coles required the waste agreement: Annexure 2, pars 146.2 and 148;

(4)Coles exerting undue pressure and using unfair tactics on Bayview by pressing Bayview for a response to Coles’ requests for payments despite the matters in (3) above (Annexure 2, par 145.5), conveying to Bayview on multiple occasions that it was necessary for Bayview to enter into the waste agreement (Annexure 2, pars 145.3, 147.1.2 and 152) and indicating that Coles’ ongoing trading relationship with Bayview and the viability of ranging Bayview’s products would be affected if Bayview did not agree to the 100% waste agreement: Annexure 2, pars 145.4 and 152.

Penalty for late delivery

183The unconscionable conduct towards Bayview in relation to the penalty for the late delivery involved Coles requiring and accepting payment of a penalty of $30,500 from Bayview when the payment was not the subject of prior agreement between Coles and Bayview and Coles was aware that Bayview was in financial difficulty (Annexure 2, par 142), in all of the circumstances set out in Annexure 2, Part III and pars 139 to 141 and 153 to 169.

184Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Bayview: Annexure 2, par 141;

(2)The penalty was not reasonably necessary for the protection of Coles’ legitimate interests because it was not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of Bayview not delivering on time: Annexure 2, pars 154 and 161.7;

(3)The terms and conditions of the Trading Arrangements between Coles and Bayview did not include a term pursuant to which Coles could impose, or Bayview was required to pay, a penalty: Annexure 2, par 155;

(4)Coles failing to disclose sufficient details, despite requests for such information, to enable Bayview to understand whether, and to what extent, the alleged late delivery had resulted in lost sales to Coles: Annexure 2, pars 161.6 and 163; and

(5)Coles exerting undue pressure and using unfair tactics on Bayview, in circumstances where Coles was aware Bayview was suffering financial hardship, by pressing Bayview for an urgent response to Coles’ requests for payment (Annexure 2, par159.2), making repeated requests for a response from Bayview (Annexure 2, pars 158, 159.2 and 162) and implicitly threatening that Coles would take measures that werecommercially detrimental to Bayview if Bayview did not agree to makethe payment: Annexure 2, par 162.3.

3.2.2.5Benny’s

Introduction and conduct

185Benny’s manufactures and supplies hard boiled lollies to supermarkets in Australia. Coles acquired a hard boiled confectionery product from Benny’s for sale in Coles’ retail stores. The product was acquired from Benny’s by Coles for Coles’ Impulse Business Category: Annexure 2, pars 170-171.

186During the Claims relevant period, Coles was in a substantially stronger bargaining position than Benny’s, in particular because Coles represented a significant proportion of the sale of Benny’s products, Coles determined whether it would continue to acquire grocery products from Benny’s and whether it would substitute grocery products it was acquiring from Benny’s with products acquired from another supplier, and due to the matters set out in Annexure 2, par 16.

187During the Claims relevant period, the Trading Arrangements between Benny’s and Coles did not include a term that required Benny’s to make a payment to Coles for short or late deliveries: Annexure 2, par 173.

188Coles’ admitted imposition of a penalty for short or late delivery and its admitted unauthorised withholding and retention of money is set out in detail in Annexure 2, pars 174-193. It is that conduct which provides the foundation for the following findings of contravention.

Findings of contravention of s 22 of the ACL

189In August to November 2011, Coles, in trade or commerce, in connection with the acquisition of grocery products from Benny’s, engaged in conduct that was, in all of the circumstances, unconscionable, resulting in two separate contraventions of s 22 of the ACL (as in force during the Claims relevant period). That conduct related to penalties for short or late delivery and unauthorised withholding and retention of money.

Penalty for short or late delivery

190The unconscionable conduct towards Benny’s which related to the penalty for short orlate deliveries involved Coles demanding that Benny’s pay two penalties totalling $1,639 in relation to alleged short or late delivery, when the payments were not thesubject of prior agreement between Coles and Benny’s, and in all of the circumstancesset out in Annexure 2, Part III and pars 170 to 193.

191Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Benny’s: Annexure 2, par 172;

(2)The terms and conditions of the Trading Arrangements between Coles and Benny’s did not include a term pursuant to which Coles could impose, or Benny’s was required to pay, a penalty: Annexure 2, par 173;

(3)The penalty was not reasonably necessary for the protection of Coles’ legitimate interests because it was not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of Benny’s not delivering on time: Annexure 2, pars 174, 175.2, 181.2, 181.4, 185.3 and 186.1;

(4)The penalty was unfair and unreasonable because it was a standard rate fine for all suppliers and exceeded the margin that Benny’s made on each carton of the relevant product that Coles acquired from Benny’s: Annexure 2, pars 177.5, 181.2 and 181.4; and

(5)Coles failing to disclose sufficient details to Benny’s about the alleged short or late deliveries, despite the requests for such information by Benny’s, and the disputes Benny’s raised about the accuracy of the information being relied upon by Coles: Annexure 2, pars 177, 181, 185.2, 188 and 192.

Unauthorised withholding and retention of money

192The unconscionable conduct towards Benny’s which related to the unauthorisedwithholding and retention of money involved Coles refusing to repay the penaltiesreferred to above, in all of the circumstances set out in Annexure 2, Part III andpars 170 to 193.

193Those circumstances included:

(1)Coles being in a substantially stronger bargaining position relative to Benny’s: Annexure 2, par 172;

(2)The circumstances outlined in [191] above;

(3)Coles exerting undue pressure and using unfair tactics on Benny’s, by withholding the payments in circumstances where Coles knew that Benny’s disputed Coles’ entitlement to the payments (Annexure 2, pars 177-193) andwithholding the payments in circumstances where Coles knew or oughtto have known that the amounts sought were unfair and unjustifiedhaving regard to the value of the penalty when compared to the price Coles paid to Benny’s for the products it acquired from Benny’s: Annexure 2, pars 177.5 and 185.3;

(4)Coles not being willing to negotiate with Benny’s about the claims including informing Benny’s that the claims Coles had raised would stand (Annexure 2, pars182 and 186.2), informing Benny’s that Coles would continue raising such claims againstBenny’s (Annexure 2, par 186.3) andnot meeting or discussing the claims with Benny’s: Annexure 2, pars 183, 184, 191 and 192.

3.3Principles applicable to relief

194These principles have been addressed in Section 2.3.1 and 2.3.2 above and are applicable in the Claims Proceeding.

195In the Claims Proceeding, the prerequisites for the making of the declarations are satisfied:

(1)The proposed declarations relate to conduct that contravenes the ACL and the matters in issue have been identified and particularised by the parties with precision;

(2)The proposed declarations contain sufficient indication of how and why the relevant conduct is a contravention of the ACL;

(3)It is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made;

(4)There is a significant legal controversy in this case which is being resolved.

(5)The ACCC, as a public regulator under the ACL, has a genuine interest in seeking the declaratory relief and Coles is a proper contradictor because it has contravened the ACL and is the subject of the declarations.

196The declarations sought are appropriate because they serve to record the Court’s disapproval of the contravening conduct, vindicate the ACCC’s claim that Coles contravened the ACL, assist the ACCC to carry out the duties conferred upon it by the Act, including the ACL, in relation to other similar conduct, inform the public of the harm arising from Coles’ contravening conduct and deter other corporations from contravening the ACL.

197Finally, the facts and admissions in Annexure 2 provide a sufficient factual foundation for the making of the declarations. For those reasons, declarations of contravention of s 22 of the ACL will be made recording Coles’ unconscionable conduct in relation to Austech ([152]-[156] and [161]-[162] above), Oates ([165]-[169] above), Colonial Farm ([173]-[175] above), Bayview ([180]-[184] above) and Benny’s ([189]-[193] above).

3.4Analysis of Proposed Penalties

198The principles relevant to the imposition of a pecuniary penalty have been addressed earlier: see Section 2.3.3. In applying those principles, the ACCC and Coles submitted that the proposed total penalty of $6.3 million is not inadequate or excessive, having regard to all relevant matters.

3.4.1Nature, extent and duration of conduct and the circumstances in which conduct took place

3.4.1.1Extent of the conduct

199The conduct the subject of the admitted contraventions occurred from June 2011 to December 2011, andthe circumstances relevant to the conduct occurred from about December2010 to about January 2012: Annexure 2, par 3. It occurred during thecourse of Coles’ communications with the suppliers in the context of Coles acquiring grocery products for sale in its retail stores.

3.4.1.2Background circumstances relating to the contravening conduct

200Background circumstances relevant to this contravening conduct were addressed in Section 2.4.1.2.1 abovein relation to the ARC Proceeding and are equally applicable in this proceeding: see Annexure 2, par 18.

3.4.1.3Relationship of the background circumstances to specific instances of unconscionable conduct

201Coles’ practices, demands and threats were deliberate, orchestrated and relentless and formed the circumstances in which the unconscionable conduct against the five specific suppliers occurred.

3.4.1.4Nature of the conduct

202The nature of the conduct is described in Annexure 2.TheACCC submits, and Coles accepts, that in broad terms Coles’ conduct in relation toeach of the suppliers in the Claims Proceeding did not have a legitimate commercial basis,was inconsistent with acceptable business practice and took place in circumstances where Coles had substantial bargaining power and, by its conduct, took advantage ofthat bargaining position.

203That conduct had common elements which are factors relevant to the determination of the appropriate penalty. The suppliers the subject of the admitted contraventions from whom Coles sought payments:

(2)Were highly dependent on their ongoing sales to Coles for their business to remain viable;

(3)Would have experienced significant detriment if Coles had ceased, orsubstantially decreased, its trading with them;

(4)Were provided with inadequate information by Coles as to the basis forthe payments demanded, even after requests were made by the suppliers for such information;

(5)Did not agree with, or could not understand the basis for the payments that Coles had demanded; and

(6)Were pressured by Coles to agree to make the payments.

204In seeking payments from these suppliers, Coles was motivated by profit, pressured the suppliers to make the payments, sought the payments despite not being entitled to them under theexisting Trading Arrangements with the supplier, did not provide the supplier with adequate, or any, information about thebasis for the payments, indicated that there would be commercial consequences if the supplierrefused in order to obtain the supplier’s agreement anddeducted money from payments owed to the supplier for products that ithad already supplied to Coles.In addition to those common elements, each supplier was subjected to the particular threats of commercial consequences set out in Section 3.2.2 above.

205The ACCC submitted, Coles accepts and the Court finds that the conduct outlined in Section 3.2.2 above, in all of the circumstances, was contrary to good conscience and involved serious contraventions of s 22 of the ACL. All of the conduct involved a claim for payments which were not provided for under Coles’ Trading Arrangements and which Coles had no reasonable basis to demand.

206Further:

(1)The profit gaps that were claimed against Austech and Oates arose from prioractions taken, or decisions made, by Coles rather than by those suppliers: Annexure 2, pars34.4, 36.3, 36.4, 39.5 and 40 in relation to Austech and pars 85.3, 87.2 and 87.3 in relation to Oates;

(2)The agreements demanded for future waste payments involved demandingpayment for matters that could be beyond the control of the supplier, includingColes’ own negligence, in relation to loss of or damage to products in Coles’ stores. Thesepayments were seen as a source of additional revenue: Annexure 2, pars 114-115; and

(3)The penalties in relation to short or late deliveries were levied without regard tothe reasons for the short or late delivery, or whether there was in fact any loss toColes whatsoever. Coles took no account of the value of the goods and the penalties werelevied even when the supplier disputed that there was a short or late delivery.

207The matters raised in [206(3)] above were exemplified by Coles’ conduct in relation to Benny’s where the fine well exceeded Benny’s total profit on the goods delivered: Annexure2, par 177.5. When Benny’ssought to demonstrate there had not even been short or late delivery, Colesrefused to provide information or engage with Benny’s on the issue and kept themoney it had taken: Annexure 2, pars 178, 179, 182-188.

208Coles’ conduct which is the subject of the admitted contraventions was serious for the additional reasons set out in [102]-[103] above.

209Coles accepted that in its dealings with the Claims Suppliers it treated them in a mannerinconsistent with acceptable business practice, was not respectful of the suppliers’ needs for full and timely transparency, and did not properly respect the responsibility attached to Coles’ bargaining power. As noted earlier, the ACL provides for significant penalties.

210The Claims Proceeding again raises the issue of the adequacy of the maximum penalty when a corporation with annual revenue in excess of $22 billion acts unconscionably.

3.4.2Amount of loss caused and profit gained

211Again, it is difficult to quantify with precision the financial impact on each supplier of Coles’ conduct. The conduct took place within the context of ongoing commercialrelationships between Coles and each supplier. Demands for payments were oftenleveraged against each other and the exact quantum of amounts paid or rebates withheldis complicated or unknown (such as in the case of the waste agreements). In thecase of Oates, monies were deducted without authorisation and were agreed to berepaid some months later in exchange for further payments from Oates.

212At the very least, Annexure 2 records the following identifiable losses suffered by the Claims Suppliers:

(1)In relation to Austech, a payment of $5,700 for retrospective waste and payments of the three rebates under the deferred deals for six months beyondthat of the agreement between Coles and Austech, which can no longerbe quantified;

(2)In relation to Oates, an inability to use money that was unlawfully retained byColes for more than five months;

(3)In relation to Bayview, a payment of $30,500 for short or late deliveries; and

(4)In relation to Benny’s, two payments totalling $1,639 for short or late deliveries.

213As explained in Section 2.4.2 above, the inability to further quantify financial loss caused to the suppliers by thecontraventions does not mean that no loss or harm has been suffered.

214Coles accepts that the payments made pursuant to the contravening conduct wereapplied directly to Coles’ revenues. While the extent of any loss or damage caused to the Claims Suppliers by the contravening conduct has not been quantified with precision, it can be inferred that ithad a detrimental effect on the Claims Suppliers.

3.4.3Whether the respondent has engaged in similar prior conduct

215This factor has been addressed in Section 2.4.3 above. It is necessary to add to that analysis the findings of contravention in relation to the ARC Proceeding in Section 2 above. Theycannot be and should not be ignored.

3.4.4Size of contravener, including market share, and its financial position

216These matters have been addressed in Section 2.4.4 and apply equally to the Claims Proceeding.

3.4.5The deliberateness of the contravening conduct

217Theconduct engaged in by Coles involved the intentional use of unfair tactics and unduepressure in dealings with suppliers in relation to whom it knew that it had substantial bargaining power: see Sections 3.1 and 3.2.2 above.

3.4.6Involvement of senior employees or management

218The contravening conduct in relation to the Claims Suppliers was committed by CMs andBCMs. As noted earlier, BCMs are considered by Coles to be Senior Managers: Annexure2, par 12.

219As with the ARC Proceeding, Coles does not admit that any other Coles senior management engaged in the conduct thesubject of the contraventions. However, Coles admits that its GMs and BCMs (who are Coles’ Senior Managers) were aware of, and encouraged, the practice of seeking money from suppliers to meet profit targets and were aware of, and either encouraged, or did not discourage, the contraveningconduct by CMs and BCMs.

3.4.7Culture of compliance and corrective measures in response to contravention

220These matters have been addressed in Section 2.4.7 and apply equally to the Claims Proceeding.

221It is important to record that Coles has undertaken to the ACCC to have an independent arbiter review itsconduct with the Claims Suppliers and assesstheir entitlement to refunds of any relevant payment. That review is the subject of paragraph 11 and following of the s 87B undertaking which is Annexure 3 to these reasons for judgment.

3.4.8Co-operation

222These matters have been addressed in Section 2.4.8 and apply equally to the Claims Proceeding: see also [221] above.

3.4.9Maximum penalties and one transaction principle

223These matters have been addressed in Section 2.4.9 and apply equally to the Claims Proceeding.

224The ten admitted contraventions concern discrete but at times related conduct againstfive different suppliers.As is self-evident, much of the conduct against particular suppliers overlaps – claims or threats of claims of one type are used to leverage payments ofanother and suppliers are often confronted by numerous claims simultaneously. Indeed, some of the admitted conduct was consequent upon a refusal of a particular demand made by a Claims Supplier.

225However, theunlawful retention of suppliers’ money, and the subsequent refusal to repay it when Coles was asked to do so, are separate acts. They wereengaged in by different personnel of Coles over time and are not the same act. A failure to treat them as separate acts, especially in relation to Oates, would notsufficiently reflect the gravity and nature of Coles’ conduct.

3.4.10Identifying the penalties for particular contraventions

226Having regard to all of those factors, I accept that thefollowing penalties for each contravention are appropriate and they are imposed:

(8)Short or late deliveries unconscionable conduct in relation toBayview: $650,000;

(9)Short or late deliveries unconscionable conduct in relation toBenny’s: $600,000;

(10)Unauthorised retention of monies in relation to Benny’s: $600,000.

227These penalties provide a significant mark of disapproval for the wrongdoingassociated with each course of conduct (when examined against the statutorymaximum for a single breach). They also make appropriate allowance for the variousmitigating features discussed above.

3.4.11Totality principle

228This principle has been addressed in Section 2.4.1.1 above and applies equally to the Claims Proceeding.

3.4.12Conclusion on appropriate penalty

229In all these circumstances, taking into account the factors relevant to setting a penaltyas well as applying the totality principle, thetotal pecuniary penalties for Coles of $6,300,000 areappropriate for the contraventions admitted. That sum should be paid to the Commonwealth within 30 days.

3.5Costs

230Coles has agreed to pay $250,000 towards the ACCC’s costs of and incidental to the Claims Proceeding within 30 days of the Court’s order. That order will be made.

I certify that the preceding two hundred and thirty(230) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate:

Dated:22 December 2014

ANNEXURE 1 –VID 253 OF 2014

STATEMENT OF AGREED FACTS AND ADMISSIONS

PURSUANT TO s 191(3)(a) OF THE EVIDENCE ACT 1995(Cth)

PART IINTRODUCTION

1.This Statement of Agreed Facts and Admissions (SoAFA) pursuant to s191(3)(a) of the Evidence Act 1995 (Cth) (Evidence Act), is made jointly on behalf of:

1.1the applicant, the Australian Competition and Consumer Commission (ACCC); and

2.This SoAFA details admissions by Coles that it contravened the then s22 of the Australian Consumer Law (ACL) being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Act).

3.The admissions of Coles in this SoAFA are made by Coles for the purposes of this proceeding only and unless otherwise stated, relate to the period from about 1 April 2011 to about 31 December 2011 (the relevant period).

PART IIBACKGROUND

Coles

4.Coles Supermarkets:

4.1is and was at all material times a corporation within the meaning of section 4 of the CCA;

4.2carries on, and at all material times carried on, business in trade or commerce as a supermarket retailer; and

4.3supplies, and at all material times supplied, grocery products for retail sale to customers in Australia.

5.GHPL:

5.1is and was at all material times a corporation within the meaning of section 4 of the CCA;

5.2carries on, and at all material times carried on, business in trade or commerce as a supermarket wholesaler; and

5.3acquires, and at all material times acquired, grocery products from manufacturers and other suppliers (collectively Suppliers) for retail sale by Coles Supermarkets to customers in Australia.

6.Coles engaged, and continues to engage, in a business of acquiring grocery products from Suppliers and selling those products to customers in Australia through Coles’ retail stores (the Coles business).

7.Coles referred, and continues to refer, to the steps and infrastructure involved in acquiring grocery products for retail sale from Suppliers and distributing them to Coles’ retail stores for display and sale as its Supply Chain.

8.Coles operated, and continues to operate, retail stores in every Australian State and mainland Territory.

9.During the relevant period, Coles supplied approximately 30% of the grocery products supplied for retail sale to customers in Australia. Together with Woolworths, Coles supplied approximately 60% to 70% of the grocery products supplied for retail sale to customers in Australia.

10.The Coles grocery business had revenue in the order of $22.1 billion for the financial year ending 30 June 2011 and in the order of $23.3 billion for the financial year ending 30 June 2012. Each of the Suppliers referred to in 0 below had revenue of less than 1% of Coles’ revenue for the financial year ending 30 June 2012.

Coles’ business

11.The Coles business was, and continues to be, structured by reference to groups of similar or related grocery products (General Categories).

12.During the relevant period:

12.1each General Category was managed by a General Manager (GM);

12.2within each General Category, the Coles business was managed by reference to smaller groups of similar or related grocery products (Business Categories);

12.3each Business Category was managed by a Business Category Manager (BCM);

12.4each BCM reported to a GM;

12.5within each Business Category, the Coles business was managed by reference to smaller groups of similar or related products (Categories);

12.6each Category was managed by a Category Manager (CM); and

12.7each CM reported to a BCM.

13.The GMs and BCMs were Coles’ Senior Managers (Senior Managers), and together with the CMs acted on behalf of Coles in relation to the conduct admitted in this SoAFA.

PART IIICIRCUMSTANCES RELEVANT TO COLES’ CONDUCT

Coles’ trading arrangements with its Suppliers

14.Coles acquired, and continues to acquire, grocery products for retail sale from Suppliers pursuant to arrangements negotiated between Coles and the Suppliers (Trading Arrangements).

15.Where Trading Arrangements were documented, the documentation could include one or more of the following documents produced by Coles:

15.1a Trading Terms Letter;

15.2a Consolidated Trading Terms Form (Trading Terms);

15.3Standard Terms and Conditions.

16.In the case of each of the Suppliers who are referred to in 0 below, the Trading Arrangements required that the Supplier pay Coles rebates, when Coles acquired the Supplier’s grocery products, calculated as a percentage of the price Coles paid for the Supplier’s products.

17.During the relevant period, Coles:

17.1determined the number of units of each grocery product that Coles would acquire from a Supplier;

17.2determined the frequency with which Coles would place orders for a grocery product with a Supplier;

17.3determined the time frame within which Suppliers were required to deliver grocery products that had been ordered by Coles;

17.4determined the price at which Coles would sell each grocery product acquired from a Supplier;

17.5determined ‘hurdle rates’ for grocery products acquired from a Supplier, being a rate of retail sales the product was expected to achieve;

17.6determined whether Coles would continue to acquire grocery products from a Supplier;

17.7determined whether Coles would substitute grocery products it was acquiring from one Supplier with products acquired from another Supplier;

17.8conducted, through its CMs, a ‘range review’ process at regular intervals, during which consideration was given to whether a Supplier’s grocery products would be deleted from the range of products available for sale in Coles’ retail stores;

17.9determined the amount and location of shelf space in each of Coles’ retail stores that would be allocated to grocery products acquired from a Supplier;

17.10determined whether grocery products acquired from a Supplier would be the subject of promotion by Coles, for example by way of a markdown in the retail price, an entry in a Coles sales catalogue, or otherwise;

17.11determined the timing, frequency, duration and financial terms of any promotions it decided to undertake for grocery products acquired from a Supplier, including the amount of any payment or other financial contribution Coles required a Supplier to make for the promotion; and

17.12required any Supplier who wished to increase the price at which it sold any of its grocery products to Coles to make an application for approval of a price increase to Coles, which approval was at the discretion of Coles.

18.Coles was in a substantially stronger bargaining position relative to each of the Suppliers referred to in 0 below, in particular because Coles represented a significant proportion of the business of each Supplier.

Coles’ business practices

19.During the relevant period, Coles:

19.1set sales and profit targets for its General Categories and Business Categories, and encouraged and/or required its CMs and BCMs to meet these sales and profit targets, including by implementing the Tier 3 ARC Plan (see Part IV below);

19.2awarded prizes to its CMs and BCMs for meeting profit targets and securing the agreement of Suppliers to the incorporation of additional rebates into their Trading Arrangements with Coles, including the ARC rebate;

19.3set aside days which were referred to within Coles as “Profit Day” or “Perfect Profit Day”, and set targets for Business Categories of money to be ‘secured’ by the Business Categories from Suppliers, including by way of the ARC and other rebates.

The ARC Program

20.Between 2004 and 2011 Coles made substantial investments in its Supply Chain, including its Distribution Centre network and its systems and processes for replenishing Coles’ stores and ordering stock from Suppliers.

21.In or around April 2011, Coles, together with the Boston Consulting Group (BCG), developed a strategy for Coles to increase its EBIT by identifying opportunities for the recovery from Suppliers of cost savings which Coles considered had been or would be achieved across its end to end supply chain.

22.The strategy was developed into a Coles business program called the Active Retail Collaboration program (the ARC program).

23.Coles considered that the changes Coles had made to its Supply Chain included:

23.1benefits to both Coles and the Supplier from Coles changing its ordering patterns to order grocery products from the Supplier in more economically efficient ordering quantities (EOQ ordering);

23.2benefits to both Coles and the Supplier from the introduction by Coles of data sharing on an internet-based ‘Supplier Portal’ and associated changes of:

23.2.135 day order plan;

23.2.2nine week sales forecast;

23.2.3six week promotional lock-down;

23.2.412 week notice for product deletion,

(data sharing).

The ARC Program in relation to Tier 3 Suppliers

Tiered classification of Suppliers

24.By about August 2011, Coles had created three categories of Suppliers, namely:

24.1Tier 1 Suppliers;

24.2Tier 2 Suppliers; and

24.3Tier 3 Suppliers.

25.The Tier 1 Suppliers were identified by Coles as its largest Suppliers with the most complex supply chains, and included Nestle, General Mills and Procter & Gamble.

26.The Tier 2 Suppliers were identified by Coles as large Suppliers with ‘simple’ supply chains.

27.The Tier 3 Suppliers:

27.1comprised approximately 220 Suppliers;

27.2were identified by Coles as, and believed by Coles to be, its ‘smaller’ Suppliers in terms of the annual sum spent by Coles on acquiring the Supplier’s grocery products (or cost of goods sold (COGS)), as compared to the annual sum spent by Coles on acquiring grocery products from Tier 1 and Tier 2 Suppliers;

28.By at least 23 August 2011, Coles had determined that the payments it would seek to obtain from Tier 3 Suppliers pursuant to the ARC program would take the form of an ongoing rebate recorded in the Trading Arrangements between Coles and the Tier 3 Supplier (the ARC rebate).

Division of ARC rebate into two components

29.By about 9 September 2011, Coles had determined that the ARC rebate would be divided into two components:

29.1an amount said to be attributed by Coles to the value to the Supplier of EOQ ordering referred to in paragraph 23.1 above (the EOQ component); and

29.2an amount said to be attributed by Coles to the value to the Supplier of data sharing (the data sharing component).

30.Between 9 September 2011 and 10 October 2011, the ARC rebate that Coles intended to obtain from its Tier 3 suppliers developed as follows:

30.1by about 9 September 2011, Coles intended to obtain an ARC rebate of 1% of the price Coles paid for the Supplier’s grocery products, made up of 0.5% for the data sharing component and 0.5% for the EOQ component;

30.2by about 15 September 2011, Coles had determined that the EOQ component would be either:

30.2.10.5% of the price Coles paid for the Supplier’s grocery products; or

30.2.2if Coles attributed a value to a Supplier of EOQ ordering of more than 0.5%, at least that value;

30.3by about 27 September 2011, Coles had determined that:

30.3.1if Coles attributed a value to a Supplier of EOQ ordering of less than 0.2%, the total ARC rebate would be 0.7% of the price Coles paid for the Supplier’s grocery products (incorporating the data sharing and EOQ components);

30.3.2if Coles attributed a value to a Supplier of EOQ ordering of more than 0.2%, the total ARC rebate would be 0.7% of the price Coles paid for the Supplier’s grocery products, plus the amount of the attributed value above 0.2%.

ARC rebate for Tier 3 Suppliers

31.By on or about 10 October 2011, Coles had determined that the ARC rebate to be paid by Tier 3 Suppliers would be the sum of:

31.1a data sharing component of 0.7% of the price Coles paid for a Supplier’s grocery products; and

31.2an EOQ component fixed at a percentage amount of the price Coles paid for a Supplier’s grocery products that equated to the value Coles attributed to the Supplier of EOQ ordering.

32.Coles calculated the rebate for EOQ by:

32.1making a series of assumptions about Tier 3 Suppliers’ activities Tier 3 Suppliers engaged in when picking a pallet and delivering the pallet to Coles;

32.2attributing costs to each of those activities based on Coles’ own costs; and

32.3inserting data about those activities, historical ordering patterns and costs into a standard formula that was used for all Tier 3 Suppliers, regardless of each Supplier’s individual circumstances.

Revenue target for ARC rebate payments by Tier 3 Suppliers

33.By or on about 10 October 2011, Coles had set a target of $16 million for the amount of money that it would seek to obtain in ARC rebates from Tier 3 Suppliers in the financial year ending 30 June 2012.

Plan for obtaining ARC rebate payments from Tier 3 Suppliers

34.By on or about 14 October 2011, Coles had developed the ARC program as it was to apply to Tier 3 Suppliers into a plan (the Tier 3 ARC Plan) incorporating the following steps:

34.1CMs would:

34.1.1on or around 17 or 18 October 2011, seek the agreement of each Tier 3 Supplier to make ongoing payments to Coles by the incorporation of the ARC rebate into their Trading Arrangements with Coles (referred to by Coles, and in the remainder of this document, as ‘the Ask’);

34.1.2deliver the Ask in accordance with a standardised script provided by Coles (the Script);

34.1.3respond to questions from Tier 3 Suppliers about the benefits that were said to flow to them from data sharing and EOQ ordering using a set of prescribed answers;

34.1.4at their discretion, provide the Supplier with a two-page document that was in a standardised form and purported to explain the basis on which the ARC rebate was calculated (the Background Materials);

34.1.5at their discretion, provide Suppliers with a Supplier Portal information pack which explained some features of the portal;

34.1.6record the agreement of Tier 3 Suppliers to the Ask in anexecuted amended version of the Supplier’s Trading Terms incorporating the ARC rebate on an ongoing basis (the Revised Trading Terms);

34.1.7not have the authority to negotiate on the amount of the ARC rebate with the Tier 3 Supplier but could escalate the negotiation to a more senior person within Coles;

34.1.8seek to have Tier 3 Suppliers agree to the Ask within a number of days;

34.1.9if the CM could not obtain the agreement of a Tier 3 Supplier to the Ask, notify the Tier 3 Supplier that its position on the Ask would be ‘escalated’ to a BCM.

34.2if a CM could not obtain the agreement of a Tier 3 Supplier to the Ask, responsibility for obtaining the Tier 3 Supplier’s agreement was to be ‘escalated’ from the CM to the BCM to whom the CM reported;

34.3the BCM to whom responsibility for obtaining the Supplier’s agreement to the Ask had been ‘escalated’ had authority to accept agreement from the Tier 3 Supplier to the Ask in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;

34.4if a BCM could not obtain the agreement of a Tier 3 Supplier, the BCM was to consider:

34.4.1notifying the Supplier that its position on the Ask would be escalated within Coles, such as to the GM to whom the BCM reported;

34.4.2escalating the Tier 3 Supplier’s position within Coles, such as to the GM to whom the BCM reported.

34.5GMs had authority to accept an agreement by a Tier 3 Supplier in circumstances where the amount of the ARC rebate the Supplier agreed to pay was less than the amount originally sought from the Supplier;

34.6‘escalation’ of a Supplier’s refusal of the Ask involved the BCM or GM to whom the matter had been elevated making contact with the Tier 3 Supplier in an attempt to secure the Supplier’s agreement (Escalation).

35.Coles unilaterally commenced ordering in EOQs from Tier 3 Suppliers in around July 2011.

Approval of Tier 3 ARC Plan by Senior Managers

36.The Tier 3 ARC Plan was approved by Senior Managers.

The Script and the Background Materials

37.The Script contained statements to the effect that:

37.1Coles had made changes to its Supply Chain;

37.2the changes Coles had made to its Supply Chain would be of benefit to the Supplier identified in the Script; and

37.3Coles had identified and calculated savings to that Supplier’s business in respect of data sharing and EOQ ordering.

38.The Background Materials contained statements to the effect that:

38.1data sharing would lead to value to the Supplier of well over 0.7% of the price Coles paid for the Supplier’s grocery products; and

38.2EOQ ordering (where applicable to the Supplier) would lead to value to the Supplier of at least a specified percentage of the price Coles paid for the Supplier’s grocery products.

39.1attributed a value to a data sharing benefit that it considered would apply to all Tier 3 Suppliers taken as a whole but had not identified or calculated any particular savings to any individual Tier 3 Supplier’s business; and

39.2calculated the value of EOQ ordering by the method at paragraph 32but had not taken any steps to establish whether its assumptions reflected the actual value of EOQ ordering to any individual Tier 3 Supplier’s business.

40.The Script and the Background Materials did not contain information that explained or justified the basis on which the data sharing or EOQ components of the ARC rebate had been determined by Coles.

Instructions to CMs and BCMs to act in accordance with Tier 3 ARC Plan

41.Between 10 October 2011 and 17 October 2011, the CMs and BCMs attended training sessions, which included presentations by Senior Managers, and were instructed to act in accordance with the Tier 3 ARC Plan.

42.The materials used at the training sessions contained slides which stated that:

42.1this is not optional for suppliers;

42.2Coles ‘needed’ the CMs to achieve its $16 million target and that this was Coles’ ‘one off chance’ to close [its profit] gap at scale’;

42.3they would be given a Script to follow and provided with Background Materials and FAQs to be used in the Tier 3 ARC process;

42.4they were to finalise trading terms with each Tier 3 supplier, incorporating an ARC rebate, within two to three days of making the Ask;

42.5if a supplier did not agree to pay an ARC rebate within one to two days, the CM or BCM was to consider using commercial leverage;

42.6various prizes would be awarded to CMs and BCMs who ‘landed’ suppliers.

Provision of materials to CMs and BCMs

43.By about 14 October 2011:

43.1CMs had been provided with a list of the Tier 3 Suppliers to whom they were to deliver the Ask;

43.2BCMs had been provided with a list of the Tier 3 Suppliers to whom the CMs that reported to them were to deliver the Ask;

43.3CMs and BCMs had been given access to a version of the Script for use by each CM in relation to each of the Tier 3 Suppliers, each of which contained:

43.3.1the statements referred to in paragraph 37above;

43.3.2on the front page, certain details concerning the Supplier, including the Supplier’s name, its Supplier ID number, the BCM responsible for the Supplier and the CM responsible for the Supplier; and

43.3.3on the second page, the amount of the ARC rebate that was to be sought from the particular Supplier;

43.4CMs and BCMs had been given access to a version of the Background Materials for use by each CM in relation to each of the Tier 3 Suppliers, each of which contained:

43.4.1statements to the effect referred to in paragraph 38above;

43.4.2the name of the Supplier; and

43.4.3the amount of the ARC rebate that was to be sought from the Supplier;

43.5CMs had been given access to Revised Trading Terms for each Tier 3 Supplier to whom they were to deliver the Ask, which included the ongoing payments sought by way of the ARC rebate; and

43.6BCMs had been given access to Revised Trading Terms for each Tier 3 Supplier to whom the CMs who reported to them were to deliver the Ask, which included the ongoing payments sought by way of the ARC rebate.

44Between 14 and 17 October 2011, there were no further instructions to CMs or BCMs that materially altered those referred to in paragraphs 41and 42above.

45As at 17 October 2011, when Coles commenced implementation of the Tier 3 ARC Plan referred to in paragraph 34above:

45.1Coles had not consulted with any Tier 3 Supplier regarding the actual value of data sharing to the Tier 3 Supplier or the actual value of EOQ ordering to the Tier 3 Supplier;

45.2Coles had not identified or calculated any particular savings to any particular Tier 3 Supplier’s business in respect of data sharing;

45.3Coles had not validated the assumptions it had made about the value of EOQ ordering to any particular Tier 3 Supplier with that Tier 3 Supplier; and

45.4Coles had commenced negotiations with 18 of its Tier 1 and Tier 2 Suppliers about the amounts that those suppliers would pay to Coles in connection with the ARC program. Only five of the 18 Tier 1 and Tier 2 Suppliers had agreed to pay any ARC rebate, and all for amounts below 0.7%.

46As a result of the matters referred to in paragraph 45above, as at 17 October 2011:

46.1Coles should not have asserted to any Tier 3 Supplier that a 0.7% data sharing component of the ARC rebate reflected the actual value to that Tier 3 Supplier of data sharing;

46.2Coles should not have made an assertion to any Tier 3 Supplier about the actual value of EOQ ordering to that Tier 3 Supplier.

Delivery of the Tier 3 Ask

47On and around 17 and 18 October 2011, the CMs, in accordance with the Tier 3 ARC Plan delivered the Ask to at least 200 Tier 3 Suppliers, including five of the suppliers referred to in 0 below.

PART IVCOLES’ CONDUCT IN RELATION TO INDIVIDUAL SUPPLIERS

Patons

Background

48Patons manufactures chocolate coated macadamia nuts and other chocolate coated confectionery for domestic and international customers.

49Coles acquired six chocolate coated confectionery products from Patons for sale in Coles’ retail stores. Five of those products were private label products, which were acquired by Coles for sale under Coles’ own brands. The products were acquired from Patons for its Snacks and Beverages, or ‘Impulse’, Business Category (Impulse Business Category).

50During the relevant period, Coles was in a substantially stronger bargaining position than Patons, in particular because:

50.1Coles represented a significant proportion of the sales of Paton’s products;

50.2Coles determined whether it would continue to acquire grocery products from Patons;

50.3Coles determined whether it would substitute grocery products it was acquiring from Patons with products acquired from another Supplier; and

50.4of the matters set out at paragraph 17 above.

Implementation of the Tier 3 ARC Plan

Conduct prior to the Patons Ask

51On 10 October 2011, Coles invited Patons to attend a Coles Supply Chain Forum on 11 October 2011. The invitation indicated that attendance was compulsory.

52On 11 October 2011, Coles delivered a presentation about changes it had made to its Supply Chain with particular focus on the Supplier Portal. Coles did not inform Patons that Coles required payment from Patons to use the Supplier Portal.

53By about 14 October 2011, Coles:

53.1had classified Patons as a Tier 3 Supplier;

53.2had determined that it would seek the agreement of Patons to make ongoing payments to Coles by incorporation of an ARC rebate of 1.25%, which was made up of 0.7% for data sharing and 0.55% for EOQ ordering, into Patons’ Trading Arrangements with Coles (the Patons Ask);

53.3had determined that a CM from its Impulse Business Category would deliver the Patons Ask;

53.4had prepared a Script for use by the CM to deliver the Patons Ask (the Patons Script), and had instructed the CM to use the Patons Script;

53.5had prepared Background Materials for use by the CM to facilitate the agreement of Patons to the Patons Ask (the Patons Background Materials), and had instructed the CM to use the Patons Background Materials if they considered it would facilitate the agreement;

53.6had prepared an amended version of Patons’ Trading Terms incorporating the ARC rebate (the Revised Patons Trading Terms), and had made the Revised Patons Trading Terms available to the CM;

53.7had determined to give Patons access to data sharing on 17 October 2011; and

53.8had commenced ordering in EOQs from Patons.

54The Patons Script used by the CM contained the statements referred to in paragraph 37, above, and also included the following statements:

54.1“… we have identified a savings from your business based on your COGS [cost of goods sold] of:

$33k/0.7% of COGS for … data sharing, and

$27k/0.55% for Economic Ordering

We would like to move this savings into your Trading Terms effective 31/10/11, where we have created a separate line for this Supply Chain Allowance.”

54.2“I’ll send you a short information pack and our amended trading terms for you to sign and return to us within 48 hours.”

Patons Ask

55On 17 October 2011, in accordance with the Tier 3 ARC Plan, the CM delivered the Patons Ask in accordance with the Patons Script to Patons during a telephone conversation.

56During the telephone conversation the CM:

56.1sought the agreement of Patons to make ongoing payments to Coles by the incorporation of a rebate of 1.25% (the Patons ARC rebate) into Patons’ Trading Terms with Coles;

56.2informed Patons that:

56.2.1data sharing would save Patons approximately 0.7% of its cost of goods sold per annum;

56.2.2EOQ ordering would save Patons approximately 0.5% of its cost of goods sold per annum;

56.2.3Patons would save approximately $60,000 per annum from data sharing and EOQ ordering;

56.2.4he wanted Patons to advise him later that day or the following day of Patons’ intentions as to whether it would agree to incorporate the Patons ARC rebate into Patons’ Trading Terms with Coles;

56.2.5he would send Patons amended Trading Terms incorporating the Patons ARC rebate, which were to be returned to Coles by Patons within 48 hours; and

56.2.6the amended Trading Terms were to be in place by 31 October 2011;

56.3did not explain how Coles had calculated the 0.7% for data sharing or the 0.55% for EOQ ordering;

56.4should not have asserted that the Patons ARC Rebate reflected the value to Patons of data sharing and EOQ ordering.

57The representation that Coles had identified savings particular to Patons of the amounts referred to in paragraphs 54.1and 56.2above were, for the reasons outlined in paragraphs 39 and 45 above, incorrect.

Response to Patons Ask

58On two occasions on 17 October 2011, after the CM had delivered the Patons Ask on behalf of Coles, Patons requested information from Coles about the Patons ARC rebate. In particular, Patons:

58.1requested information from Coles about when Coles had implemented EOQ ordering in relation to products ordered from Patons; and

58.2requested an explanation from Coles as to how the figure of $60,000 referred to in paragraph 56.2.3above had been calculated.

59On 17 October 2011, in response to the requests for information referred to in paragraph 58 above, the CM:

59.1informed Patons that Coles had been using EOQ ordering for Patons for the previous three to five months;

59.2in accordance with the Tier 3 ARC Plan, provided Patons with a copy of the Patons Background Materials;

59.3did not explain how Coles had calculated the figure of $60,000 referred to in paragraph 56.2.3 above;

59.4did not provide Patons with any information that was adequate to enable Patons to understand the basis on which the data sharing or EOQ ordering components of the Patons ARC rebate had been determined by Coles.

Coles provides Revised Patons Trading Terms to Patons

60On 19 October 2011, in accordance with the Tier 3 ARC Plan, the CM provided Patons with an unsigned copy of the Revised Patons Trading Terms, which incorporated the Patons ARC rebate which had not been agreed to by Patons.

61On 19 October 2011, after having received the Revised Patons Trading Terms, Patons informed Coles that:

61.1Patons had not been able to identify any savings to Patons from EOQ ordering or data sharing;

61.2Patons would review any further data that Coles could provide to support the savings Coles considered Patons would achieve from EOQ ordering or data sharing; and

61.3at this point in time, Patons would not agree to a change to its Trading Terms with Coles.

62On 20 and 21 October 2011, the CM from Coles contacted Patons by telephone and pressured Patons to agree to the Ask within a matter of days, including by:

in circumstances where Coles had not provided any further information to explain or justify the Revised Patons Trading Terms.

Escalation of Patons Ask

63By 25 October 2011, Patons had not agreed to incorporate the Patons ARC rebate into its Trading Terms with Coles.

64On 25 October 2011, in accordance with the Tier 3 ARC Plan, the responsibility for obtaining the agreement of Patons to the incorporation of the Patons ARC rebate into Patons’ Trading Terms with Coles was escalated to a BCM.

Threat to Patons and agreement to Patons Ask

65On 26 October 2011, the BCM contacted Patons by telephone, and during the course of the telephone conversation with Patons, the BCM:

65.1pressured Patons by informing Patons that:

65.1.1Coles expected Patons to agree to the Patons Ask;

65.1.2he wanted Patons to agree to the Patons Ask that day;

65.1.3Coles would cease Patons’ access to the Supplier Portal;

65.2threatened Patons with commercial consequences if it did not agree to the Patons Ask, including that:

65.2.1Coles would not promote Patons’ grocery products;

65.2.2Coles would not acquire any new grocery products from Patons; and

65.2.3Coles would place orders with Patons based only on Patons’ sales history with Coles and would not provide Patons with any forecasting information; and

65.3still did not explain how Coles had calculated the figure of 0.7% for data sharing, or the figure of 0.55% for EOQ ordering.

66On or about 26 October 2011, Patons:

66.1informed the BCM that, in light of the threats referred to in 0 above, Patons had no choice but to agree to the incorporation of the Patons ARC rebate into Patons’ Trading Terms with Coles; and

66.2signed the Revised Patons Trading Terms and returned them to Coles.

67In the circumstances outlined above, Coles:

67.1did not provide Patons with any adequate explanation of how the Patons ARC rebate reflected the value to Patons of data sharing; and

67.2did not conduct any informed negotiation with Patons about the value to Patons of data sharing or EOQ ordering,

and despite knowing that:

67.3Patons had signed and return the Revised Patons Trading Terms in the circumstances outlined in paragraph 66above;

67.4Patons did not believe that the Patons ARC rebate represented any value being obtained by Patons from data sharing and EOQ ordering,

Coles commenced deducting the Patons ARC rebate from the amount it pays to Patons for goods Coles acquires from Patons. Patons continues to pay an ARC rebate to Coles.

69Coles acquired goods for retail sale in Coles’ retail stores from Stuart Alexander for five different Categories,including confectionery products that were acquired by Coles for its Impulse Business Category. The confectionery products that Coles acquired from Stuart Alexander were imported branded confectionery products.

70During the relevant period, Coles was in a substantially stronger bargaining position than Stuart Alexander, in particular because:

70.1Coles represented a significant proportion of the sales of Stuart Alexander’s products;

70.2Coles determined whether it would continue to acquire grocery products from Stuart Alexander;

70.3Coles determined whether it would substitute grocery products it was acquiring from Stuart Alexander with products acquired from another Supplier; and

70.4of the matters set out in paragraph 17above.

Implementation of the Tier 3 ARC Plan

Conduct Prior to the Stuart Alexander Ask

71On 10 October 2011, Coles invited Stuart Alexander to attend a Coles Supply Chain Forum on 12 October 2011. The invitation indicated that attendance was compulsory.

72On 12 October 2011, Coles delivered a presentation about changes it had made to its Supply Chain with particular focus on the Supplier Portal. Coles did not inform Stuart Alexander that Coles required payment from Stuart Alexander to use the Supplier Portal.

73By about 14 October 2011, Coles:

73.1had classified Stuart Alexander as a Tier 3 Supplier;

73.2had determined that it would seek the agreement of Stuart Alexander to make ongoing payments to Coles by incorporation of an ARC rebate of 1.01%, which was made up of 0.7% for data sharing and 0.31% for EOQ ordering, into Stuart Alexander’s Trading Arrangements with Coles with respect to confectionery (the Stuart Alexander Ask);

73.3had determined that a CM from its Impulse Business Category would deliver the Stuart Alexander Ask;

73.4had prepared a Script for use by the CM to deliver the Stuart Alexander Ask (the Stuart Alexander Script), and had instructed the CM to use the Stuart Alexander Script;

73.5had prepared Background Material for use by the CM to facilitate the agreement of Stuart Alexander to the Stuart Alexander Ask (the Stuart Alexander Background Materials), and had instructed the CM to use the Stuart Alexander Background Materials if they considered it would facilitate the agreement; and

73.6had prepared an amended version of Stuart Alexander’s Trading Terms with respect to confectionery incorporating the ARC rebate (the Revised Stuart Alexander Confectionery Trading Terms), and had made the Revised Stuart Alexander Confectionery Trading Terms available to the CM;

73.7had determined to give Stuart Alexander access to data sharing on 17 October 2011; and

73.8had commenced ordering in EOQs from Stuart Alexander.

74The Stuart Alexander Script used by the CM contained the statements referred to in paragraph 37, above, and also included the following statements:

74.1“… we have identified a savings from your business based on your cost of goods sold (COGS) of:

$117k/0.7% of COGS for … data sharing, and

$51k/0.31% for Economic Ordering

We would like to move this savings into your Trading Terms effective 31/10/11, where we have created a separate line for this Supply Chain Allowance.”

74.2“I’ll send you a short information pack and our amended trading terms for you to sign and return to us within 48 hours.”

Stuart Alexander Ask

75On 17 October 2011, in accordance with the Tier 3 ARC Plan, the CM delivered the Stuart Alexander Ask in accordance with the Stuart Alexander Script to Stuart Alexander during a conversation.

76During the course of the conversation the CM:

76.1sought the agreement of Stuart Alexander to make ongoing payments to Coles by the incorporation of a rebate of 1.01% (the Stuart Alexander ARC rebate) into Stuart Alexander’s Trading Terms with Coles with respect to confectionery (Confectionery Trading Terms);

76.2informed Stuart Alexander that:

76.2.1Coles was introducing new systems that would deliver savings for Stuart Alexander;

76.2.2 data sharing would save Stuart Alexander approximately 0.7% of its cost of goods sold per annum;

76.2.3EOQ ordering would save Stuart Alexander approximately 0.31% of its cost of goods sold per annum; and

76.3did not explain how Coles had calculated the 0.7% for data sharing or the 0.31% for EOQ ordering;

76.4should not have asserted that the Stuart Alexander ARC Rebate reflected the value to Stuart Alexander of data sharing and EOQ ordering.

77The representations that Coles had identified savings particular to Stuart Alexander of the amounts referred to in paragraph 74.1and 76.2above were, for the reasons outlined in paragraphs 39 and 45above, incorrect.

78During the conversation referred to in paragraphs 75and 76above, Stuart Alexander asked for more time to consider the Stuart Alexander ARC Ask.

79Later that day, in accordance with the Tier 3 ARC Plan, and despite the request referred to in paragraph 78above, the CM provided Stuart Alexander with a copy of the Stuart Alexander Background Materials.

80The Stuart Alexander Background Materials did not contain information that was adequate to enable Stuart Alexander to understand the basis on which the data sharing or EOQ ordering components of the Stuart Alexander ARC rebate had been determined by Coles.

Escalation of Stuart Alexander Ask

81By 21 October 2011, Stuart Alexander had not agreed to incorporate the Stuart Alexander ARC rebate into its Trading Terms with Coles.

82On 21 October 2011, in accordance with the Tier 3 ARC Plan, the responsibility for obtaining the agreement of Stuart Alexander to the incorporation of the Stuart Alexander ARC rebate into Stuart Alexander’s Confectionery Trading Terms was escalated to a BCM.

Threat to Stuart Alexander

83On 21 October 2011, during the course of a meeting with Stuart Alexander, the BCM pressured Stuart Alexander and threatened it with commercial consequences if it did not agree to the Stuart Alexander Ask, including that:

83.1Coles would not acquire any new grocery products from Stuart Alexander;

83.2Coles would not discuss, or would delay discussing, new grocery product development with Stuart Alexander; and

83.3Coles would not promote Stuart Alexander’s products.

84The BCM:

84.1did not explain how Coles had calculated the figure of 0.7% for data sharing, or the figure of 0.31% for EOQ ordering; and

84.2did not provide Stuart Alexander with any information that was adequate to enable Stuart Alexander to understand the basis on which the data sharing or EOQ ordering components of the Stuart Alexander ARC rebate had been determined by Coles.

85On 21 October 2011, following the meeting referred to in paragraph 83above:

85.1in accordance with the Tier 3 ARC Plan, the CM provided Stuart Alexander with an unsigned copy of the Revised Stuart Alexander Confectionery Trading Terms, which incorporated the Stuart Alexander ARC rebate which had not been agreed to by Stuart Alexander; and

85.2the BCM asked Stuart Alexander to agree to the Stuart Alexander Ask by requesting that Stuart Alexander “write back “approved” to the 1.01% ARC terms”.

86On 22 October 2011, having received the Revised Stuart Alexander Confectionery Trading Terms and the request referred to in paragraph 85.2above, Stuart Alexander informed Coles that:

86.1Stuart Alexander could not agree to the Stuart Alexander ARC rebate;

86.2Stuart Alexander did not consider that there would be any savings to Stuart Alexander from data sharing;

86.3Stuart Alexander considered that it was difficult to confirm whether there was a benefit to Stuart Alexander from EOQ ordering;

86.4Stuart Alexander understood that, as a result of Stuart Alexander not agreeing to the Stuart Alexander Ask:

86.4.1responsibility for obtaining the agreement of Stuart Alexander would be further escalated;

86.4.2Stuart Alexander would lose access to the Supplier Portal;

86.4.3Coles would not promote Stuart Alexander’s products; and

86.4.4Coles would not accept new lines of products from Stuart Alexander.

Further Threats and Escalation of the Stuart Alexander Ask

87On 15 November 2011, Stuart Alexander:

87.1informed Coles that:

87.1.1as a distributor, Stuart Alexander would not benefit in savings of 0.7% from data sharing;

87.1.2Stuart Alexander’s numbers showed a saving of 0.12% with respect to data sharing;

87.1.3Stuart Alexander would agree to incorporate a rebate of 0.42% into its Confectionery Trading Terms with Coles, subject to Coles reinstating a promotion of one of its products; and

87.2provided Coles with a hand annotated version of the Stuart Alexander Background Materials, to reflect Stuart Alexander’s reasons for considering that the savings to Stuart Alexander from data sharing and EOQ ordering would be 0.42%.

88On 2 December 2011, the BCM pressured Stuart Alexander by further threatening Stuart Alexander with commercial consequences if it did not agree to the Stuart Alexander Ask, namely that Coles would not discuss any new product development with Stuart Alexander.

89On 14 December 2011, Stuart Alexander informed Coles that Stuart Alexander would agree to incorporate a rebate of 0.42% into its Confectionery Trading Terms with Coles, without the need for Coles to reinstate the promotion referred to in paragraph 87.1.3above.

90On 17 December 2011, the BCM informed Stuart Alexander that:

90.1Coles was unable to agree to Stuart Alexander’s position on the Stuart Alexander ARC rebate;

90.2Coles would not offer forecast collaboration to Stuart Alexander;

90.3Coles would cease Stuart Alexander’s access to the Supplier Portal;

90.4Coles would cease EOQ ordering for Stuart Alexander; and

90.5in accordance with the Tier 3 ARC Plan, informed Stuart Alexander that one of Coles’ GMs would like to discuss the Stuart Alexander ARC rebate with Stuart Alexander.

91On 6 January 2012, Stuart Alexander informed Coles that Stuart Alexander would incorporate a rebate of 0.42% into its Confectionery Trading Terms with Coles, together with an amount of money that was the equivalent of 0.28% of its Confectionery Trading Terms with Coles. Coles agreed to this on 27 January 2012.

92In the circumstances outlined above, Coles:

92.1did not provide Stuart Alexander with any adequate explanation of how the Stuart Alexander ARC rebate reflected the value to Stuart Alexander of data sharing; and

92.2did not conduct any informed negotiation with Stuart Alexander about the value to Stuart Alexander of data sharing or EOQ ordering,

and despite knowing that Stuart Alexander did not believe that the Stuart Alexander ARC rebate represented any value being obtained by Stuart Alexander from data sharing and EOQ ordering, Coles commenced deducting the Stuart Alexander ARC rebate from the amount it pays to Stuart Alexander for goods Coles acquires from Stuart Alexander. Stuart Alexander continues to pay an ARC rebate to Coles.

94The majority of the products that Coles acquired from Tru Blu for sale in Coles’ retail stores were private label products, which Tru Blu manufactured for Coles and packaged under Coles-owned brands. These products were acquired by Coles from Tru Blu on an order-to-order basis without a fixed-term contract.The products were acquired from Tru Blu for Coles’ Impulse Business Category.

95During the relevant period, Coles was in a substantially stronger bargaining position than Tru Blu, in particular because:

95.1Coles represented a significant proportion of the sales of Tru Blu’s products;

95.2Coles determined whether it would continue to acquire grocery products from Tru Blu;

95.3Coles determined whether it would substitute grocery products it was acquiring from Tru Blu with products acquired from another Supplier; and

95.4of the matters set out at paragraph 17 above.

Implementation of the Tier 3 ARC Plan

Conduct prior to the Tru Blu Ask

96By about 17 October 2011, Coles:

96.1had classified Tru Blu as a Tier 3 Supplier;

96.2had determined that it would seek the agreement of Tru Blu to make ongoing payments to Coles by incorporation of an ARC rebate of 0.8%, which was made up of 0.7% for data sharing and 0.1% for EOQ ordering, into Tru Blu’s Trading Arrangements with Coles (the Tru Blu Ask);

96.3had determined that a CM from its Impulse Business Category would deliver the Tru Blu Ask;

96.4had prepared Background Material for use by the CM to facilitate the agreement of Tru Blu to the Tru Blu Ask (the Tru Blu Background Materials), and had instructed the CM to use the Tru Blu Background Materials if they considered it would facilitate the agreement;

96.5had prepared an amended version of Tru Blu’s Trading Terms incorporating the ARC rebate (the Revised Tru Blu Trading Terms), and had made the Revised Tru Blu Trading Terms available to the CM;

96.6had determined to give Tru Blu access to data sharing on 17 October 2011; and

96.7had commenced ordering in EOQs from Tru Blu.

Tru Blu Ask

97On 18 October 2011, in accordance with the Tier 3 ARC Plan, the CM delivered the Tru Blu Ask to Tru Blu during a telephone conversation.

98During the telephone conversation the CM sought the agreement of Tru Blu to make ongoing payments to Coles by the incorporation of a rebate of 0.8% (the Tru Blu ARC rebate) into Tru Blu’s Trading Terms with Coles.

99Subsequently on 18 October 2011, the CM, in accordance with the Tier 3 ARC Plan:

99.1represented that Coles had identified savings to Tru Blu of:

99.1.1“$402k/0.7% of COGS for … data sharing”; and

99.1.2“59k/0.10% for Economic Ordering”;

99.2provided Tru Blu with a copy of the Tru Blu Background Materials;

99.3sought Tru Blu’s agreement to the Tru Blu Ask by midday on 19 October 2011;

99.4did not explain how Coles had calculated the figure of 0.7% for data sharing or the figure of 0.1% for EOQ ordering; and

99.5should not have asserted that the Tru Blu ARC Rebate reflected the value to Tru Blu of data sharing and EOQ ordering.

100The representation that Coles had identified savings for Tru Blu of the amounts referred to in paragraph 99.1 above were, for the reasons outlined in paragraphs 39 and 45above, incorrect.

101The Tru Blu Background Materials did not contain information that was adequate to enable Tru Blu to understand the basis on which the data sharing or EOQ ordering components of the Tru Blu ARC rebate had been determined by Coles.

Response to Tru Blu Ask

102On 19 October 2011, Tru Blu informed Coles that it would not participate in the ARC program.

Threats to Tru Blu and action by Coles

103By at least 19 October 2011, Tru Blu had requested a meeting with Coles to discuss a proposal for a long-term contract with Coles for the supply of private label products.

104On about 20 October 2011, at a meeting between Tru Blu and the CM:

104.1the CM reiterated the Tru Blu Ask;

104.2Tru Blu informed Coles that it would not agree to the Tru Blu Ask because ARC would add costs to Tru Blu’s business rather than delivering costs savings;

104.3the CM pressured Tru Blu and threatened it with the commercial consequences that if it did not agree to the Tru Blu Ask Coles would not participate in any constructive discussions about a contract for the supply of private label products by Tru Blu or other matters in relation to Tru Blu’s business.

105On 21 October 2011, the CM again pressured Tru Blu and threatened it with the commercial consequence that if it did not agree to the Tru Blu Ask Coles would not agree to any long term contract with Tru Blu for the supply of private label products.

106On 14 November 2011, Coles informed Tru Blu that, as a result of Tru Blu failing to agree to the Tru Blu ARC rebate, Coles would no longer provide Tru Blu with three-month forecasts of Coles’ requirements for the private label products Coles acquired from Tru Blu, and instead Coles would provide only four week forecasts.

Escalation of Tru Blu Ask

107By 15 November 2011, Tru Blu had not agreed to incorporate the Tru Blu ARC rebate into its Trading Terms with Coles and, in accordance with the Tier 3 ARC Plan, the responsibility for obtaining the agreement of Tru Blu to the incorporation of the Tru Blu ARC rebate into Tru Blu’s Trading Terms with Coles was escalated to a BCM.

Further actions by Coles

108On 15 November 2011, in communications between Tru Blu and the BCM:

108.1Tru Blu informed the BCM that Tru Blu had rejected the Tru Blu ARC rebate on the basis that it would add costs to Tru Blu’s business rather than delivering cost savings;

108.2the BCM pressured Tru Blu and threatened it with the commercial consequences of:

108.2.1refusing to meet with Tru Blu until Tru Blu had agreed over the telephone with the CM to the incorporation of the Tru Blu ARC rebate into its Trading Terms with Coles; and

108.2.2refusing to consider a long-term contract between Coles and Tru Blu for the supply of private label products.

108.3the BCM did not explain how Coles had calculated the figure of 0.7% for data sharing or the figure of 0.1% for EOQ ordering.

Tru Blu’s response to Tru Blu Ask

109Tru Blu later agreed to incorporate an ARC rebate of 0.5% into Tru Blu’s Trading Terms with Coles, and Coles entered into a contract with Tru Blu for the acquisition of private label products by Coles from Tru Blu.

110In the circumstances outlined above, Coles:

110.1did not provide Tru Blu with any adequate explanation of how the Tru Blu ARC rebate reflected the value to Tru Blu of data sharing; and

110.2did not conduct any informed negotiation with Tru Blu about the value to Tru Blu of data sharing or EOQ ordering,

and despite knowing that Tru Blu did not believe that the Tru Blu ARC rebate or the 0.5% ARC rebate represented any value being obtained by Tru Blu from data sharing and EOQ ordering, Coles commenced deducting the 0.5% ARC rebate from the amount it pays to Tru Blu for goods Coles acquires from Tru Blu. Tru Blu continues to pay an ARC rebate to Coles.

Austech Products Pty Ltd

Background

111Austech manufactures a range of household consumer products under the Orange Power, Aware, Actizyme and Stain Magic brands, which it supplies primarily to supermarkets.

112Coles acquired ten household consumer products from Austech for sale in Coles’ retail stores. Each of those products were sold by Coles under brands associated with Austech. The products acquired from Austech were part of the range acquired by Coles’ Homecare Business Category.

113During the relevant period, Coles was in a substantially stronger bargaining position than Austech, in particular because:

113.1Coles represented a significant proportion of the sales of Austech’s products;

113.2Coles determined whether it would continue to acquire grocery products from Austech;

113.3Coles determined whether it would substitute grocery products it was acquiring from Austech with products acquired from another Supplier; and

113.4of the matters set out in paragraph 17 above.

Implementation of the Tier 3 ARC Plan

Conduct prior to the Austech Ask

114By about 14 October 2011, Coles:

114.1had classified Austech as a Tier 3 Supplier;

114.2had determined that it would seek the agreement of Austech to make ongoing payments to Coles by incorporation of an ARC rebate of 1.2%, which was made up of 0.7% for data sharing and 0.5% for EOQ ordering, into Austech’s Trading Arrangements with Coles (the Austech Ask);

114.3had determined that a CM from its Homecare Business Category would deliver the Austech Ask;

114.4had prepared a Script for use by the CM to deliver the Austech Ask (the Austech Script), and had instructed the CM to use the Austech Script;

114.5had prepared an amended version of Austech’s Trading Terms incorporating the ARC rebate (the Revised Austech Trading Terms), and had made the Revised Austech Trading Terms available to the CM;

114.6had determined to give Austech access to data sharing on 17 October 2011; and

114.7had commenced ordering in EOQs from Austech.

115The Austech Script contained the statements referred to in paragraph 37, above, and also included the following statements:

115.1“… based on your COGS we have identified savings in your business of:

$17k/ 0.5% for Economic Ordering; and

$26k/ 0.7% of COGS for … data sharing

… we would like to apportion the savings delivered by this investment and corresponding benefit to you with the introduction of a Supply Chain Allowance. We would like to work through this in discussion with you.”

Austech Ask

116On 14 October 2011, in accordance with the Tier 3 ARC Plan, the CM delivered the Austech Ask in accordance with the Austech Script to Austech during a telephone conversation.

117During the telephone conversation:

117.1the CM sought the agreement of Austech to make ongoing payments to Coles by the incorporation of a rebate of 1.2% (the Austech ARC rebate) into Austech’s Trading Terms with Coles;

117.2the CM informed Austech that:

117.2.1Coles had invested in a ‘Supplier Portal’ which would improve the efficiency of Austech’s business;

117.2.2data sharing would save Austech approximately 0.7% of its cost of goods sold per annum;

117.2.3EOQ ordering would save Austech approximately 0.5% of its cost of goods sold per annum;

117.2.4Austech was required to agree to incorporate the Austech ARC rebate into Austech’s Trading Terms with Coles;

117.3the CM did not explain how Coles had calculated the figure of 0.7% for data sharing or the figure of 0.5% for EOQ ordering;

117.4the CM should not have asserted that the Austech ARC Rebate reflected the value to Austech of data sharing and EOQ ordering; and

117.5Austech told the CM:

117.5.1supplying Coles with orders in full or part pallets meant that Austech might save about $900 only; and

117.5.2Austech made a month’s worth of supply in a day and to do any less was not economically viable.

118The representation that Coles had identified savings for Austech of the amounts referred to in paragraph 115.1and 117.2above were, for the reasons outlined in paragraphs 39and 45above, incorrect.

Response to Austech Ask

119On 17 October 2011, Austech informed Coles that Austech saw little benefit to its business from EOQ ordering or data sharing.

Threat to Austech and agreement to Austech Ask

120By 19 October 2011, Austech had not agreed to incorporate the Austech ARC rebate into its Trading Terms with Coles.

121Despite being informed of the matters in paragraph 117.5and 119above, on 19 October 2011, the CM contacted Austech by telephone, and during the course of the telephone conversation the CM:

121.1informed Austech that:

121.1.1big companies like Nestle had agreed to pay an ARC rebate, and were paying more than Austech;

121.1.2the Austech ARC rebate had been worked out for Austech’s size business;

121.1.3if Austech ‘signed up’ that day, she would meet with Austech to discuss how Coles and Austech could drive Austech’s business, add new product lines and do promotions;

121.1.4if Austech did not agree to the Austech ARC Ask, Coles would cease EOQ ordering from Austech and order from Austech in volumes that comprised part pallets;

121.2pressured Austech and threatened it with the commercial consequence that if it did not agree to incorporate the Austech ARC rebate into its Trading Terms with Coles, Coles’ replenishers would give no support to Austech; and

121.3again did not explain how Coles had calculated the figure of 0.7% for data sharing or the figure of 0.5% for EOQ ordering.

122At the conclusion of the conversation referred to in paragraph 121above, Austech informed Coles that Austech would agree to incorporate the Austech ARC rebate into its Trading Terms with Coles.

123The statements referred to in paragraphs 121.1.1and 121.1.2above were incorrect.

124On 19 October 2011, in the context of considering the ARC rebate, Austech informed Coles that the Board of Austech had requested that Coles provide certain information in relation to the ranging of Austech’s products.

125In reply to this request, the CM informed Austech that the CM would be transparent and supply the information sought by Austech but only after Austech had agreed to the Austech Ask.

126On 20 October 2011, as a result of being informed of the matters referred to in paragraph 121above, including the threat in paragraph 121.2, and as a result of the agreement referred to in paragraph 122above, Austech signed and returned the Revised Austech Trading Terms to Coles.

127In the circumstances outlined above, Coles:

127.1did not provide Austech with any adequate explanation of how the Austech ARC rebate reflected the value to Austech of data sharing; and

127.2did not conduct any informed negotiation with Austech about the value to Austech of data sharing or EOQ ordering,

and despite knowing that:

127.3Austech did not believe that the Austech ARC rebate represented any value being obtained by Austech from data sharing and EOQ ordering; and

127.4Austech did not believe that the incorporation of the Austech ARC rebate into its Trading Terms, or the amount of the Austech ARC rebate, were matters that it could negotiate with Coles,

Coles commenced deducting the Austech ARC rebate from the amount it pays to Austech for goods Coles acquires from Austech. Austech continues to pay an ARC rebate to Coles.

129Coles acquired 35 products from Oates for sale in Coles’ retail stores. All of those products were sold under the Oates brand. The majority of the products Coles acquired from Oates were acquired for its Homecare Business Category.

130During the relevant period, Coles was in a substantially stronger bargaining position than Oates, in particular because:

130.1Coles represented a significant proportion of the sale of Oates’ products;

130.2Coles determined whether it would continue to acquire grocery products from Oates;

130.3Coles determined whether it would substitute grocery products it was acquiring from Oates with products acquired from another Supplier; and

130.4of the matters set out at paragraph 17above.

Implementation of the Tier 3 ARC Plan

Conduct prior to the Oates Ask

131On 10 October 2011, Coles invited Oates to attend a Coles Supply Chain Forum on 11 October 2011. The invitation indicated that attendance was compulsory.

132On 11 October 2011, Coles delivered a presentation about changes it had made to its Supply Chain with particular focus on the Supplier Portal. Coles did not inform Oates that Coles required payment from Oates to use the Supplier Portal.

133By about 14 October 2011, Coles:

133.1had classified Oates as a Tier 3 Supplier;

133.2had determined that it would seek the agreement of Oates to make ongoing payments to Coles by incorporation of an ARC rebate of 1.14%, which was made up of 0.7% for data sharing and 0.44% for EOQ ordering, into Oates’ Trading Arrangements with Coles (the Oates Ask);

133.3had determined that a CM from its Homecare Business Category would deliver the Oates Ask;

133.4had prepared a Script for use by the CM to deliver the Oates Ask (the Oates Script), and had instructed the CM to use the Oates Script;

133.5had prepared an amended version of Oates’ Trading Terms incorporating the ARC rebate (the Revised Oates Trading Terms), and had made the Revised Oates Trading Terms available to the CM;

133.6had determined to give Oates access to data sharing on 17 October 2011; and

133.7had commenced ordering in EOQs from Oates.

134The Oates Script used by the CM contained the statements referred to in paragraph 37above, and also included the following statements:

134.1“… based on your COGS we have identified savings in your business of:

$29k/0.4% for Economic Ordering; and

$46k/0.7% of COGS for … data sharing

… we would like to apportion the savings delivered by this investment and corresponding benefit to you with the introduction of a Supply Chain Allowance. We would like to work through this in discussion with you.”

Oates Ask

135On 17 October 2011, in accordance with the Tier 3 ARC Plan, the CM delivered the Oates Ask in accordance with the Oates Script to Oates during a meeting at Coles’ Head Office in Victoria.

136During the course of the meeting the CM:

136.1sought the agreement of Oates to make ongoing payments to Coles by the incorporation of a rebate of 1.14% (the Oates ARC rebate) into Oates’ Trading Terms with Coles;

136.2informed Oates that:

136.2.1the Oates ARC rebate reflected the value to Oates of the changes Coles had made to its supply chain;

136.2.2data sharing would save Oates approximately 0.7% of its cost of goods sold per annum;

136.2.3EOQ ordering would save Oates approximately 0.44% of its cost of goods sold per annum;

136.2.4Coles had already introduced EOQ ordering in relation to the products it acquired from Oates;

136.2.5the Oates ARC rebate was to be incorporated into Oates’ Trading Terms with Coles with effect from 31 October 2011;

136.2.6he required Oates to provide feedback and an indication of whether Oates would agree to the incorporation of the Oates ARC rebate into Oates’ Trading Terms with Coles by 4pm that day;

136.2.7Oates was required to agree to incorporate the Oates ARC rebate into Oates’ Trading Terms with Coles;

136.3the CM did not explain how Coles had calculated the figure of 0.7% for data sharing or the figure of 0.44% for EOQ ordering; and

136.4should not have asserted that the Oates ARC rebate reflected the value to Oates of data sharing and EOQ ordering.

137The representations that Coles had identified savings for Oates of the amounts referred to in paragraphs 134.1, 136.2.2and 136.2.3above were, for the reasons outlined in paragraph 39 and 45above, incorrect.

Follow up to Oates Ask

138Subsequently on 17 October 2011, the CM:

138.1reiterated that Coles wished to add the Oates ARC rebate to Oates’ Trading Terms with Coles, and that it comprised 0.7% for data sharing and 0.44% for EOQ ordering;

138.2reiterated that the Oates ARC rebate would be added to Oates’ Trading Terms with Coles and would be effective from 31 October 2011; and

138.3said that he wanted confirmation that Oates accepted the Oates ARC rebate by 4.00pm that day and would then forward Revised Oates Trading Terms.

139On 20 October 2011, the CM:

139.1again requested a response from Oates as to whether Oates agreed to incorporate the Oates ARC rebate into Oates’ Trading Terms with Coles;

139.2in accordance with the Tier 3 ARC Plan, informed Oates that if Oates did not agree to incorporate the Oates ARC rebate into Oates’ Trading Terms with Coles, the matter would be escalated; and

139.3informed Oates that 25% of Coles’ other Suppliers had already agreed to incorporate an ARC rebate into their Trading Terms with Coles.

140Subsequently on 20 October 2011, the CM:

140.1repeated his request for a response from Oates as to whether Oates agreed to incorporate the Oates ARC rebate into Oates’ Trading Terms with Coles; and

140.2informed Oates that Coles would like the most senior person available at Oates to meet with Coles’ management team in relation to the Oates ARC rebate.

Escalation of Oates Ask

141Subsequent to the repeated requests for a response to the Oates Ask referred to in paragraphs 136.1, 138, 139and 140, Oates had still not agreed to incorporate the Oates ARC rebate into its Trading Terms with Coles.

142Subsequently on 20 October 2011, in accordance with the Tier 3 ARC Plan, the responsibility for obtaining the agreement of Oates to the incorporation of the Oates ARC rebate into Oates’ Trading Terms was escalated to a BCM.

143On numerous occasions on 20 October 2011 and 21 October 2011, the BCM pressured Oates to agree to the Oates Ask, by contacting several different representatives of Oates requesting, on each occasion, for Oates to advise whether or not it would agree to the Oates Ask. On at least one occasion on 21 October 2011, the BCM informed Oates that Coles had set a deadline of midday that day for Oates to provide an answer.Later on 21 October 2011 the BCM informed Oates that Coles expected Oates to advise of its position by 10.00am on Monday 24 October 2011.

144In addition to the numerous requests for a response to the ARC Ask by the BCM referred to in paragraph 143above, on 21 October 2011 the CM also pressured Oates by reiterating the ARC Ask to Oates, noting that it comprised 0.7% for data sharing and 0.44% for EOQ ordering. The CM also informed Oates that the Oates ARC rebate would be added to Oates’ Trading Terms with Coles and would be effective from 31 October 2011.

145On 24 October 2011, Oates informed Coles that:

145.1Oates could not identify savings to Oates that equated to an addition of 1.14% to its Trading Terms with Coles;

145.2Oates did not agree to incorporate the Oates ARC rebate into its Trading Terms with Coles;and

145.3there was still no official resolution to the unauthorised withholding by Coles of $246,400 due to Oates which had been deducted earlier in the year without the agreement or authority of Oates.

146In response to being informed of the matters referred to in paragraph 145above, the BCM informed Oates that Coles needed Oates’ support with the ‘Supplier Portal’ and wanted to meet with Oates to discuss Oates’ position on the Oates ARC rebate.

Threat to Oates

147On 24 October 2011, during the course of a telephone conversation with Oates, the CM:

147.1expressed surprise and disappointment that Oates had not agreed to the Oates ARC rebate;

147.2pressured Oates, and threatened it with commercial consequences if it did not agree to the Oates Ask, including:

147.2.1if Oates did not sign up to ARC this may impact on Coles’ decisions about ranging Oates’ products relative to other Suppliers;

147.2.2if Oates did not sign up to ARC, there may be risks to promotional activity for Oates’ products; and

147.2.3Oates would be classified as a ‘transactional’ Supplier, which may have implications for ranging;

147.3informed Oates that some of Oates’ competitors were trying to have their products added to the Coles range of products.

148On 25 October 2011, during the course of a meeting with Oates, the CM and the BCM further pressured Oates and threatened it with commercial consequences if Oates did not agree to the Oates Ask by using words to the effect that failing to agree to the Oates ARC rebate would:

148.1be seen by Coles as a lack of support for Coles; and

148.2might affect Oates’ continued relationship with Coles.

149On 27 October 2011, the CM:

149.1informed Oates that if it did not agree to the Oates Ask:

149.1.1Oates would not have access to the ‘Supplier Portal’;

149.1.2Coles would cease EOQ ordering from Oates; and

149.1.3in accordance with the Tier 3 ARC Plan, Oates’ position on the Oates ARC rebate would be escalated to a GM.

149.2again threatened Oates that if it did not agree to the Oates Ask Coles would only maintain a ‘transactional’ relationship with Oates;

149.3expressed concern that Oates’ supply may be adversely affected by it not agreeing to pay Coles the ARC rebate;

149.4advised Oates that Coles would pay Oates the $246,400 that it had withheld from Oates in relation to the claim referred to in paragraph 145.3above.

Agreement to Oates Ask

150On or about 18 November 2011, Oates offered to make monthly payments to the total of $365,200 (inclusive of GST), which included a $70,000 lump sum that was the approximate equivalent of the Oates ARC rebate for the 2012 financial year.

151In the circumstances outlined above, Coles:

151.1did not provide Oates with any adequate explanation, of how the Oates ARC rebate reflected the value to Oates of data sharing; and

151.2did not conduct any informed negotiation with Oates about the value to Oates of data sharing or EOQ ordering,

and, despite knowing that Oates did not believe that the Oates ARC rebate represented value being obtained by Oates from data sharing and EOQ ordering, Coles accepted the offer outlined in paragraph 150above. At the conclusion of the period referred to above, Coles requested that Oates continue making payments such that it continues to pay for ARC.

Conclusion

152.Coles admits each of the contraventions in the proposed declarations which are Annexure A to the joint submissions filed in these proceedings.

ANNEXURE 2 – VID 609 OF 2014

STATEMENT OF AGREED FACTS AND ADMISSIONS PURSUANT TO s 191(3)(a) OF THE EVIDENCE ACT 1995 (CTH)

PART IINTRODUCTION

1This Statement of Agreed Facts and Admissions (SoAFA) pursuant to s 191(3)(a) of the Evidence Act 1995 (Cth) (Evidence Act), is made jointly on behalf of:

1.1the applicant, the Australian Competition and Consumer Commission (ACCC); and

2This SoAFA details admissions by Coles that it contravened the then s 22 of the Australian Consumer Law (ACL) being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Act).

3The admissions of Coles in this SoAFA are made by Coles for the purposes of this proceeding only and unless otherwise stated, relate to the period from about December 2010 to about 31 December 2011 (the relevant period).

PART IIBACKGROUND

Coles

4Coles Supermarkets:

4.1is and was at all material times a corporation within the meaning of section 4 of the CCA;

4.2carries on, and at all material times carried on, business in trade or commerce as a supermarket retailer; and

4.3supplies, and at all material times supplied, grocery products for retail sale to customers in Australia.

5GHPL:

5.1is and was at all material times a corporation within the meaning of section 4 of the CCA;

5.2carries on, and at all material times carried on, business in trade or commerce as a supermarket wholesaler; and

5.3acquires, and at all material times acquired, grocery products from manufacturers and other suppliers (collectively Suppliers) for retail sale by Coles Supermarkets to customers in Australia.

6Coles engaged, and continues to engage, in a business of acquiring grocery products from Suppliers and selling those products to customers in Australia through Coles’ retail stores (the Coles business).

7Coles operated, and continues to operate, retail stores in every Australian State and mainland Territory.

8During the relevant period, Coles supplied approximately 30% of the grocery products supplied for retail sale to customers in Australia. Together with Woolworths, Coles supplied approximately 60% to 70% of the grocery products supplied for retail sale to customers in Australia.

9The Coles grocery business had revenue in the order of $22.1 billion for the financial year ending 30 June 2011 and in the order of $23.3 billion for the financial year ending 30 June 2012. Each of the Suppliers referred to in 0 below had revenue of less than 0.50% of Coles’ revenue for the financial year ending 30 June 2012.

Coles’ business

10The Coles business was, and continues to be, structured by reference to groups of similar or related grocery products (General Categories).

11During the relevant period:

11.1each General Category was managed by a General Manager (GM);

11.2within each General Category, the Coles business was managed by reference to smaller groups of similar or related grocery products (Business Categories);

11.3each Business Category was managed by a Business Category Manager (BCM);

11.4each BCM reported to a GM;

11.5within each Business Category, the Coles business was managed by reference to smaller groups of similar or related products (Categories);

11.6each Category was managed by a Category Manager (CM); and

11.7each CM reported to a BCM.

12The GMs and BCMs were Coles’ Senior Managers (Senior Managers), and together with the CMs acted on behalf of Coles in relation to the conduct admitted in this SoAFA.

PART IIICIRCUMSTANCES RELEVANT TO COLES’ CONDUCT

Coles’ trading arrangements with its Suppliers

13Coles acquired, and continues to acquire, grocery products for retail sale from Suppliers pursuant to arrangements negotiated between Coles and the Suppliers (Trading Arrangements).

14Where Trading Arrangements were documented, the documentation could include one or more of the following documents produced by Coles:

14.1a Trading Terms Letter;

14.2a Consolidated Trading Terms Form (Trading Terms);

14.3Standard Terms and Conditions.

15In the case of each of the Suppliers who are referred to in 0 below, the Trading Arrangements required that the Supplier pay Coles rebates, when Coles acquired the Supplier’s grocery products, calculated as a percentage of the price Coles paid for the Supplier’s products.

16During the relevant period, Coles:

16.1determined the number of units of each grocery product that Coles would acquire from a Supplier;

16.2determined the frequency with which Coles would place orders for a grocery product with a Supplier;

16.3determined the time frame within which Suppliers were required to deliver grocery products that had been ordered by Coles;

16.4determined the price at which Coles would sell each grocery product acquired from a Supplier;

16.5determined ‘hurdle rates’ for grocery products acquired from a Supplier, being a rate of retail sales the product was expected to achieve;

16.6determined whether Coles would continue to acquire grocery products from a Supplier;

16.7determined whether Coles would substitute grocery products it was acquiring from one Supplier with products acquired from another Supplier;

16.8conducted, through its CMs, a ‘range review’ process at regular intervals, during which consideration was given to whether a Supplier’s grocery products would be deleted from the range of products available for sale in Coles’ retail stores;

16.9determined the amount and location of shelf space in each of Coles’ retail stores that would be allocated to grocery products acquired from a Supplier;

16.10determined whether grocery products acquired from a Supplier would be the subject of promotion by Coles, for example by way of a markdown in the retail price, an entry in a Coles sales catalogue, or otherwise;

16.11determined the timing, frequency, duration and financial terms of any promotions it decided to undertake for grocery products acquired from a Supplier, including the amount of any payment or other financial contribution Coles required a Supplier to make for the promotion; and

16.12required any Supplier who wished to increase the price at which it sold any of its grocery products to Coles to make an application for approval of a price increase to Coles, which approval was at the discretion of Coles.

17Coles was in a substantially stronger bargaining position relative to each of the Suppliers referred to in 0 below, in particular because Coles represented a significant proportion of the business of each Supplier.

Coles’ business practices

18During the relevant period, Coles:

18.1set sales and profit targets for its General Categories and Business Categories, and encouraged and/or required its CMs and BCMs to meet these profit targets, including by engaging in the practices outlined in paragraphs 19 to 26 below;

18.2awarded prizes to its CMs and BCMs for meeting profit targets;

18.3set aside days which were referred to within Coles as “Profit Day” or “Perfect Profit Day”, and set targets for Business Categories of money to be ‘secured’ by the Business Categories from Suppliers, including for profit gaps, waste and markdown and penalties for late and short deliveries.

Profit Gaps

19Coles expected its profit in respect of a Supplier’s products to increase in line with the Supplier’s sales growth. If Coles’ profit on a Suppliers product was growing behind the Supplier’s sales to Coles, Coles referred to the difference between the Supplier’s sales growth and Coles’ profit growth as a profit gap.

20Coles knew that profit gaps in respect of any particular product could be caused by Coles' own acts and omissions and by other matters which were largely or entirely outside the control of Suppliers.

21During the relevant period, Coles encouraged and/or required its CMs and BCMs to seek payments or other funding from Suppliers in order to make up purported profit gaps.

Waste

22During the relevant period, Coles recorded what it claimed to be the cost to it of:

22.1products that Coles acquired from a Supplier that were identified as lost, damaged or unfit for sale while in Coles’ retail stores (waste); and

22.2Coles’ employees or agents reducing, or marking down, the price in Coles’ retail stores of products Coles acquired from a Supplier (markdowns).

23Coles knew that waste and markdowns in respect of any particular product could be caused by its own acts or omissions rather than any act or omission by the Supplier of that product.

24Coles encouraged and/or required its CMs and BCMs to seek payments from Suppliers on the premise that Coles had recorded waste or markdowns for the Supplier’s products.

Late or Short Deliveries

25During the relevant period, Coles determined that it would impose ‘penalties’ or ‘fines’, in the form of monetary penalties, on Suppliers in some or all of the Business Categories in the Grocery and Frozen General Category, that Coles had recorded as not delivering the products that Coles ordered from them on time and in full in accordance with the order placed by Coles (late or short deliveries).

26Coles encouraged and/or required its CMs and BCMs to seek the monetary penalties referred to in paragraph 25 in circumstances where:

26.1the monetary penalties were not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of the late or short delivery; and

26.2late or short deliveries may not lead to any loss to Coles.

PART IVCOLES’ CONDUCT IN RELATION TO INDIVIDUAL SUPPLIERS

Austech Products Pty Ltd (Austech)

Background

27Austech manufactures a range of household consumer products under the Orange Power, Aware, Actizyme and Stain Magic brands, which it supplies primarily to supermarkets.

28Coles acquired ten household consumer products from Austech for sale in Coles’ retail stores. Each of those products were sold by Coles under brands associated with Austech. The products acquired from Austech were part of the range acquired by Coles’ Homecare Business Category.

29During the relevant period, Coles was in a substantially stronger bargaining position than Austech, in particular because:

29.1Coles represented a significant proportion of the sales of Austech’s products;

29.2Coles determined whether it would continue to acquire grocery products from Austech;

29.3Coles determined whether it would substitute grocery products it was acquiring from Austech with products acquired from another Supplier; and

29.4of the matters set out in paragraph 16 above.

Purported Profit Gap Claims

30The Trading Arrangements between Coles and Austech did not include a term that entitled Coles to payments for purported “profit gaps”.

31On 7 December 2010, Coles:

31.1informed Austech that Coles had a purported profit gap of $25,845 on selling Austech’s products in the first five months of the 2011 Financial Year (the first Austech purported profit gap);

31.2made a request that Austech advise what payment of $25,845 it would make to Coles to pay the first Austech purported profit gap within three days;

31.3did not provide Austech with details of the cause or causes of the first Austech purported profit gap.

32Coles made the request for Austech to make a payment for the first Austech purported profit gap despite the fact that:

32.1it had not identified the cause or causes of the first Austech purported profit gap; and

32.2it had not identified any conduct or omission by Austech that had resulted in the first Austech purported profit gap.

33At no time did Coles have a reasonable basis to believe that it was entitled to seek the payment from Austech for the first Austech purported profit gap.

34On 10 December 2010, Austech informed Coles that:

34.1it was mystified as to why the first Austech purported profit gap had arisen;

34.2over the preceding two years Coles had increased the retail price of Austech’s products, even though Austech had not increased the prices it charged Coles for those products;

34.3Austech would like a more detailed report showing each of Austech’s lines individually because the first Austech purported profit gap might relate to a product branded as Actizyme;

34.4the Actizyme line had been purchased by Austech in March 2010.

35On 13 December 2010, Coles:

35.1informed Austech that Coles could not provide Austech with the information sought by Austech;

35.2recommended that Austech review its own records to determine the cause of the first Austech purported profit gap; and

35.3indicated that it was urgent that Austech make a payment in respect of the first Austech purported profit gap.

36On 13 December 2010, Austech informed Coles that:

36.1Austech could not identify any cause of the first Austech purported profit gap for which Austech was responsible;

36.2Austech believed the first Austech purported profit gap must have been caused by an issue with Actizyme;

36.3Actizyme had only been transferred to Austech's account with Coles in March 2010;

36.4Austech had no way of knowing what promotions Coles had undertaken, or margins Coles was receiving, on Actizyme in the preceding year;

36.5Austech would like Coles to investigate the Actizyme line to confirm that it was the cause of the first Austech purported profit gap; and

36.6Austech may be willing to offer to pay something in relation to the first Austech purported profit gap.

37By 17 December 2010, Austech had not received a response from Coles in relation to the matters raised in paragraph 36 above.

38On 17 December 2010 Austech advised Coles of the fact that it had not received a response, and informed Coles that;

38.1Austech would like to find out whether the first Austech purported profit gap was caused by Actizyme;

38.2Austech understood that Coles wanted a resolution sooner rather than later;

38.3to secure the Actizyme line in the short term, Coles was given authority to raise a claim for the amount of the first Austech purported profit gap sought by Coles.

39On 22 June 2011, Coles informed Austech that:

39.1Coles had, by oversight, not withheld the money that Austech had agreed to pay to Coles in relation to the first Austech purported profit gap;

39.2the first Austech purported profit gap was caused by the Actizyme product;

39.3despite the fact referred to in paragraph 39.2, Coles would process the claim for the first Austech purported profit gap that week so as to withhold $25,845 from money due to Austech;

39.4Coles’ profits on selling Actizyme in the periods from 1 April 2010 to 30 June 2010 and 6 December 2010 to 11 April 2011 were $15,516.74 less than Coles wanted them to have been (the second Austech purported profit gap);

39.5the second Austech purported profit gap had arisen because the cost to Coles of acquiring Actizyme was $0.62 more expensive per unit than it had been before 1 April 2010;

39.6Coles wanted Austech to review and confirm that it would make a payment to Coles of $15,516.74 in respect of the second Austech purported profit gap; and

39.7Coles wanted Austech to agree to make the payment in respect of the second Austech purported profit gap by midday of the following day.

40Coles made the request that Austech confirm that it would make a payment to Coles of $15,516.74 in respect of the second Austech purported profit gap by midday on 23 June 2011, despite the fact that Coles:

40.1knew that the second Austech purported profit gap had arisen because the effect of an agreement that Coles had made at some earlier time with the previous owner of Actizyme was that the cost to Coles per unit of Actizyme was greater after 1 April 2010 than it was before 1 April 2010; and

40.2had not identified any conduct or omission by Austech that had resulted in the second Austech purported profit gap (for example, Austech could not increase the price that it charged Coles for its products without the agreement of Coles).

41At no time did Coles have a reasonable basis to believe that it was entitled to seek a payment from Austech for the second Austech purported profit gap.

42On 23 June 2011, Austech informed Coles that:

42.1Austech had matched the price to Coles for Actizyme that was being charged by the previous owner of Actizyme;

42.2Austech had still not received the detailed information it had sought in relation to the first Austech purported profit gap;

42.3there had been no other price increases from Austech to Coles for more than 3 years.

43On 23 June 2011, Coles:

43.1reiterated its demand upon Austech for a payment for the amount of the first Austech purported profit gap;

43.2continued to ignore Austech’s requests for the information about the first Austech purported profit gap;

43.3informed Austech that Coles had identified a net purported profit gap of $168,186 on selling Austech’s products in the 2011 Financial Year (the Austech net purported profit gap);

43.4inquired as to whether Austech would prefer that Coles raise one claim of $168,186 in relation to the Austech net purported profit gap; and

43.5asked Austech to confirm that same day that it agreed to make payments for the first Austech purported profit gap and the second Austech purported profit gap.

44Coles engaged in the conduct referred to in paragraph 43.3 and 43.4 above, despite the fact that Coles:

44.1had not identified any conduct or omission by Austech that had resulted in the Austech net purported profit gap; and

44.2had no reasonable basis to believe that it was entitled to seek a payment from Austech for the Austech net purported profit gap.

45By engaging in the conduct referred to in paragraph 44 above, Coles conveyed, and intended to convey, to Austech that if Austech did not agree to make payments for the first Austech purported profit gap and the second Austech purported profit gap, Coles would pursue Austech for the Austech net purported profit gap. Coles engaged in that conduct in order to pressure Austech into agreeing to make the payments for the first and second Austech purported profit gaps, despite them having been attributable to issues that arose prior to Austech owning the Actizyme product.

46On 23 June 2011, Austech informed Coles that:

46.1in light of Coles’ assertion of the Austech net purported profit gap, Austech would need to confirm acceptance of the first Austech purported profit gap and the second Austech purported profit gap;

46.2it did not understand how Coles could claim payments for profit gaps based on the information that Coles had provided;

46.3it proposed using an upcoming meeting to discuss how Coles reached the figures for the profit gaps as Austech had charged no price increases to Coles for over 3 years and one of Austech’s product lines had been deleted;

46.4it would like to know if it would be possible, to help Austech’s cash flow, to split Coles’ claims for payments for the first Austech purported profit gap and the second Austech purported profit gap over the next two payments due from Coles to Austech.

47On 23 June 2011, Coles informed Austech that:

47.1Coles required payments before the end of the 2011 financial year for the first Austech purported profit gap and the second Austech purported profit gap; and

47.2Coles was going to process claims against Austech for payments for the first Austech purported profit gap and the second Austech purported profit gap within 7 days.

48Coles subsequently withheld amounts equivalent to the first and second Austech purported profit gaps from payments due to Austech prior to the end of the 2011 financial year.

Claims for retrospective waste payment

49On or about 21 June 2011, Coles informed Austech that there had been waste on one of Austech’s product lines during the 2011 Financial Year.

50On 23 June 2011, at the same time that Austech was dealing with the claims Coles was making for payments in respect of the first and second Austech purported profit gap, Coles:

50.1informed Austech that Coles was looking for a payment of $5,700 from Austech for the waste referred to in paragraph 49 above;

50.2indicated that there was a purported profit gap on selling Austech’s laundry product lines in the 2011 Financial Year, which would also be covered by making the payment referred to in paragraph 50.1, above;

50.3sought a response to the matter referred to in paragraph 50.1, above, within 3 hours.

51Coles requested that Austech agree to make the Austech waste payment within 3 hours of the payment being sought, despite:

51.1Coles having not identified:

51.1.1the cause of the waste referred to in paragraph 49 above;

51.1.2any conduct or omission by Austech that had contributed to the causes of the waste referred to in paragraph 49 above.

51.2the Trading Arrangements between Austech and Coles not including a term that required Austech to make a payment to Coles for waste or markdowns.

52At no time did Coles have a reasonable basis to believe that it was entitled to seek the payment for waste from Austech.

53On 23 June 2011, Austech:

53.1advised Coles that it did not understand what Coles meant by ‘waste’;

53.3sought further information in relation to the payment for waste being sought by Coles and the causes of the waste;

53.4referred to a report that Coles had provided to Austech, which indicated that there had been a reduction in waste from the previous year; and

53.5offered to pay Coles half of the amount that Coles had sought for waste.

54On 23 June 2011, Coles did not accept the offer referred to in paragraph 53 above. Instead, Coles informed Austech that Coles required a payment of a higher sum of $8,046.98. That higher sum was made up of:

54.1the Austech waste payment, which was reduced to $3,186 to take into account that Austech already made payments to Coles for ullage; and

54.2a payment of $4,860.98 for a purported profit gap on selling Austech’s laundry product lines in the 2011 Financial Year (the Austech laundry purported profit gap).

55Prior to engaging in the conduct referred to in paragraph 54 above, Coles had not identified:

55.1the cause or causes of the Austech laundry purported profit gap;

55.2any conduct or omission by Austech that had resulted in that purported profit gap.

56At no time did Coles have a reasonable basis to believe that it was entitled to seek the payment from Austech for the Austech laundry purported profit gap.

57By engaging in the conduct referred to in paragraph 54 above, Coles conveyed, and intended to convey, to Austech that if Austech did not agree to the Austech waste payment, Coles would pursue Austech for the Austech laundry purported profit gap. Coles engaged in that conduct in order to pressure Austech into agreeing to make the Austech waste payment, despite:

57.1there being no prior agreement from Austech that it would make such payments;

57.2Coles having provided insufficient information to enable Austech to understand:

57.2.1the causes of waste;

57.2.2what contribution, if any, Austech had made to the causes of waste;

57.2.3the basis upon which the Austech waste payment was sought;

57.2.4how the Austech waste payment was calculated.

58On 23 June 2011, Austech indicated that it would make the Austech waste payment of $5,700 in lieu of the higher sum sought by Coles, noting that Austech still did not understand how the purported profit gaps that Coles had been claiming had arisen.

Agreeing to deferred deal

59In around late July and early August 2011, Coles conducted a range review in relation to the household cleaning products that it acquired from its Suppliers for sale in Coles’ retail stores (the Household Range Review).

60On 12 August 2011 Coles informed Austech that:

60.1following the Household Range Review, Coles were deleting two of the products lines that it acquired from Austech for sale in Coles’ retail stores; and

60.2Coles required Austech to fully fund the markdowns of those product lines.

62As at August 2011, Shower Cleaner was one of Austech’s largest selling product lines in terms of volume of sales and a significant percentage of Austech’s production volume of Shower Cleaner was acquired by Coles.

63.1stated that Coles had not informed Austech, during the recent Household Range Review, that the Shower Cleaner product line might be deleted;

63.2informed Coles:

63.2.1of the matters in paragraphs 62 above;

63.2.2that Austech had invested a significant amount of money in a promotional campaign to be launched in October 2011, which was demonstrated to Coles during the Household Range Review, in which Shower Cleaner featured heavily;

63.2.3having regard to the financial consequences of Coles’ decision to delete the Shower Cleaner product line, Austech wanted to discuss the decision with Coles.

64On 15 August 2011, Austech made a further request to Coles to discuss Coles’ decision.

65Between 15 August 2011 and 25 August 2011, Coles:

65.1agreed not to delete Shower Cleaner from Coles’ retail stores;

65.2informed Austech that, in order to continue to acquire products from Austech for sale in Coles’ retail stores, Coles needed to improve its profit margin on those products, and required a “deferred rebate” from Austech.

66Coles used the term “deferred rebate” to refer to a rebate paid by a Supplier to Coles that was calculated per unit of a Supplier’s product and would be in effect for a certain period of time or would apply to a certain number of units of a Supplier’s product.

67On 25 August 2011, Austech indicated to Coles that it was financially difficult for Austech to make changes to improve Coles’ profit margin, partly because Austech had not increased its price to Coles for a number of years, despite an increase in the costs of essential raw materials. Notwithstanding that difficulty, after informing Coles that Austech considered that it was necessary for Austech to have its products available for sale in Coles’ retail stores, Austech agreed to offer temporary deferred rebates on three of its product lines to improve Coles’ profit margin (the Austech deferred deal).

68On 30 August 2011, Austech informed Coles that the Austech deferred deal would apply until further notice.

69On 31 August 2011, Coles informed Austech that the Austech deferred deal had been processed to apply for the period from 5 September 2011 to 27 November 2011 and, if required, Coles would request an extension to the Austech deferred deal closer to the end of that period.

70On 17 October 2011, a Coles CM sought the agreement of Austech to make ongoing payments to Coles by the incorporation of a rebate of 1.2% (the Austech ARC rebate) into Austech’s Trading Terms with Coles.

71On 19 October 2011, in the context of considering the ARC rebate, Austech requested that Coles provide an assurance that the Austech deferred deal would conclude on 27 November 2011.

72Later that day, Coles informed Austech that the Austech deterred deal would conclude on the agreed date unless Austech and Coles agreed to extend it.

Refusing to end deferred deal

73On 15 November 2011, Coles requested that Austech agree to an extension of the Austech deferred deal for a further 12 months.

74On 16 November 2011, Austech informed Coles that Austech did not agree to extend the Austech deferred deal and that Coles had previously agreed that the Austech deferred deal would end on the agreed date.

75On 17 November 2011, despite the matters in paragraph 67, 68, 71, 72 and 74 above, Coles informed Austech that Coles was not willing to remove the Austech deferred deal.

76The effect of Coles’ refusal to remove the Austech deferred deal was that the three rebates constituting the Austech deferred deal would continue to be deducted by Coles from the amounts that Coles was obliged to pay to Austech for products purchased from Austech.

77On 21 November 2011, Austech:

77.1again informed Coles that Austech considered that it was necessary for Austech to have its products available for sale in Coles’ retail stores;

77.2informed Coles that Austech wanted to meet Coles’ requirements;

77.3referred to the financial difficulties involved in continuing the Austech deferred deal; and

77.4offered, as a compromise, to extend the Austech deferred deal for a further 6 months.

78Despite the matters in paragraphs 74 and 77.3 above, Coles continued to reduce the amount it paid to Austech for goods Coles acquired from Austech by the amount of the three rebates constituting the Austech deferred deal for a further 6 months.

80Coles acquired 35 products from Oates for sale in Coles’ retail stores. All of those products were sold under the Oates brand. The majority of the products Coles acquired from Oates were acquired for its Homecare Business Category.

81During the relevant period, Coles was in a substantially stronger bargaining position than Oates, in particular because:

81.1Coles represented a significant proportion of the sale of Oates’ products;

81.2Coles determined whether it would continue to acquire grocery products from Oates;

81.3Coles determined whether it would substitute grocery products it was acquiring from Oates with products acquired from another Supplier; and

81.4of the matters set out at paragraph 16 above.

Purported Profit Gap Claim

82The Trading Arrangements between Coles and Oates did not include a term that entitled Coles to payments for a purported “profit gap”.

83On 21 June 2011, at a meeting between Oates and Coles, Coles:

83.1informed Oates to the effect that Coles had a purported profit gap of $326,590 on selling Oates’ products in the 2011 financial year (Oates purported profit gap);

83.2required a payment from Oates of $326,590 due to the Oates purported profit gap; and

83.3did not provide Oates with:

83.3.1details of the cause or causes of the Oates purported profit gap; or

83.3.2information about how Coles had calculated the Oates purported profit gap.

84During the evening of 21 June 2011, Coles:

84.1confirmed the requirement that Oates make a payment of $326,590 for the Oates purported profit gap; and

84.2sought that Oates confirm by “first thing” the following morning that it would make the payment referred to in paragraph 84.1 above.

85Coles made the requests for Oates to make a payment of $326,590 for the Oates purported profit gap despite the fact that:

85.1it had not identified the cause or causes of the Oates purported profit gap;

85.2it had not identified any conduct or omission by Oates that had resulted in the Oates purported profit gap; and

85.3a substantial cause of the Oates purported profit gap were unilateral actions taken by Coles during the 2011 financial year, without the agreement of Oates, to conduct a promotion on Oates’ products by selling those products at a price below Coles’ cost.

86At no time did Coles have a reasonable basis to believe that it was entitled to seek the payment from Oates for the Oates purported profit gap.

87On 22 June 2011, Oates informed Coles that it would not make a payment to Coles of $326,590 for the Oates purported profit gap because, among other things:

87.1making the payment of $326,590 to Coles would mean paying to Coles a very significant proportion of the earnings before interest and tax that Oates would otherwise have made on sales to Coles for the 2011 financial year;

87.2the price to Coles of Oates’ products had remained unchanged for 2 years and Oates had absorbed increased costs in raw materials throughout this time, without increasing the prices it charged to Coles; and

87.3the actions of Coles referred to in paragraph 85.3 above, had, by Oates’ estimate, eroded over $200,000 of Coles’ profit.

88On 23 June 2011, Oates requested that Coles provide Oates with detail as to how Coles had arrived at the amount of $326,590 as the Oates purported profit gap.

89On 24 June 2011, Coles:

89.1informed Oates that Coles expected that Coles’ profit would grow in line with any growth in the net cost to Coles of Oates’ products and Coles’ net profit on the sale of Oates’ products needed to improve by $326,909;

89.2informed Oates that Coles was not prepared to work collaboratively with Oates for the next year to step change the Oates and Coles businesses if Oates did not rectify the Oates purported profit gap;

89.3provided the figures for the percentage growth in Coles’ sales growth, Coles’ net profit and the net cost to Coles of acquiring Oates’ products in the 2011 financial year compared with the preceding financial year; and

89.4sought a response from Oates in relation to this issue that day.

90On 24 June 2011, Oates informed Coles that the figures referred to in paragraph 89.3 above were not sufficient, and Oates required greater detail from Coles as to the Oates purported profit gap.

91Despite the request referred to in paragraph 88 above and the matters referred to in paragraph 90 above, Coles did not provide Oates with the details of:

91.1how the figures used to determine the Oates purported profit gap of $326,590 were calculated;

91.2the cause or causes of the Oates purported profit gap; or

91.3any basis for any entitlement on the part of Coles to payment from Oates for the Oates purported profit gap.

92On 24 June 2011, Oates informed Coles that:

92.1Oates could not identify any cause of the Oates purported profit gap for which it was responsible; and

92.2given the importance of its relationship with Coles, Oates offered to provide Coles with:

92.2.1a cash payment of $50,000, referred to as “straight monies”; and

92.2.2discounts on the price of products Coles acquired from Oates in June and July 2011 to the total value of $174,000.

93On 8 July 2011, Coles informed Oates that Coles agreed to Oates’ proposal in paragraph 92 above, except that Coles would that day raise a claim for a cash payment, referred to as a “straight claim”, of $224,000 (exclusive of GST).

Unauthorised withholding and retention of money due to Oates

94On 8 July 2011, Coles internally raised and processed a claim for $246,400 (inclusive of GST) against Oates, with the consequence that Coles would deduct $246,400 from the next payment due from Coles to Oates for products acquired by Coles from Oates. Coles raised and processed the claim for $246,400 (inclusive of GST) despite not having the authority or agreement from Oates to do so.

95On 11 July 2011, Oates informed Coles that a claim for the immediate payment of $224,000 (exclusive of GST) to Coles was unacceptable to Oates. Oates offered to provide Coles with payments totalling $224,000 over six weeks, comprised of:

95.1discounts on the price of products Coles acquired from Oates in July and August 2011 to the total value of $174,000; and

95.2a payment of $50,000, which could be claimed by Coles immediately upon acceptance of the discounts that had been offered.

96On or about 14 July 2011, without the authority or agreement of Oates, Coles deducted the amount of $246,400 (inclusive of GST) from a payment due from Coles to Oates.

97.3the deduction needed to be reversed by Coles as a matter of urgency.

98On 25 July 2011, Oates reiterated that it wanted the unauthorised deduction of $246,400 by Coles to be reversed.

99On 29 July 2011, Oates informed Coles that:

99.1there was an urgent need to resolve the unauthorised retention of money due to Oates by Coles;

99.2Coles could not withhold money due to Oates without agreement from Oates; and

99.3Coles had not provided any substantiating detail for the claim in respect of the Oates purported profit gap.

100On 29 July 2011, Coles agreed that there was a need to resolve the retention of money due to Oates by Coles so that Coles and Oates could continue their commercial relationship.

101On 9 August 2011, Oates, by email, provided Coles with three proposals for resolving Coles’ unauthorised retention of the $246,400, including:

101.1two proposals of a similar nature to the proposals outlined in paragraphs 92.2 and 95 above, both of which involved the immediate payment by Coles to Oates of the $246,400; and

101.2a third proposal, which involved Coles retaining the $246,400 if Coles agreed to acquire certain product lines from Oates on the terms outlined in the email.

102By 15 August 2011, Coles:

102.1had reviewed the circumstances in which it came to engage in the conduct specified in paragraph 96 above;

102.2having reviewed the matter, had decided that the $246,400 that it had withheld from money due to Oates on or about 14 July 2011 was an unauthorised deduction; and

102.3determined that instead of paying the $246,400 that was due to Oates in one lump sum, Coles would pay the amount over time by deducting it from monies that became due to Coles from Oates from time to time.

103On 15 August 2011, Coles met with Oates to discuss the proposal referred to in paragraph 101.2 above in order to resolve the unauthorised withholding by Coles of the $246,400 due to Oates.

104Following that meeting, on 17 August 2011, Oates provided a written offer to Coles in similar terms to the proposal summarised in paragraph 101.2 above.

105On 24 October 2011, Oates informed Coles that there was still no official resolution to the unauthorised withholding by Coles of $246,400 due to Oates.

106On 27 October 2011, Coles advised Oates that Coles would pay Oates the $246,000 that it had withheld from Oates.

107As at 18 November 2011, Coles had not paid Oates the $246,400 that it had withheld from Oates without the agreement or authority of Oates.

108On or about 18 November 2011, Oates offered to make monthly payments to the total of $365,200 (inclusive of GST), which included an amount of $295,200, representing a sum to address the Oates purported profit gap and paid in exchange for Coles providing Oates with a number of catalogue spots and product trials.

Resolution to the unauthorised withholding and retention of money due to Oates

109Despite knowing that there was no basis for any entitlement on the part of Coles to payment from Oates for the Oates purported profit gap, on or about 28 November 2011, Coles accepted the offer outlined in paragraph 108 above.

110On 3 January 2012, Coles returned the $246,400 that it had, without authority or agreement, withheld from money due to Oates on or about 14 July 2011 to Oates.

Colonial Farm (Aust) Pty Ltd (Colonial Farm)

Background

111Colonial Farm manufactures ‘value-added’ protein products such as meatballs or chicken kievs, which it supplies to retailers and other customers.

112Coles acquired approximately eleven frozen processed food products from Colonial Farm for sale in Coles’ retail stores. Three of those products were private label products, which were acquired by Coles for sale under Coles’ own brands. The products that Coles acquired from Colonial Farm were acquired by Coles for its Frozen Business Category and were supplied by Colonial Farm to Coles with a minimum shelf life of at least 12 months.

113During the relevant period, Coles was in a substantially stronger bargaining position than Colonial Farm, in particular because:

113.1Coles represented a significant proportion of the sale of Colonial Farm’s products;

113.2Coles determined whether it would continue to acquire grocery products from Colonial Farm;

113.3Coles determined whether it would substitute grocery products it was acquiring from Colonial Farm with products acquired from another Supplier; and

114.1its Frozen Business Category was not meeting its budget targets for the financial year ending 30 June 2012 (2012 financial year);

114.2a way to enable Coles to meet its budget targets in the Frozen Business Category for the 2012 financial year was to enter agreements with Suppliers pursuant to which those Suppliers would make payments to Coles that were equivalent to 100% of the purported costs to Coles of waste and markdowns on the products Coles acquired from those Suppliers (100% waste agreement).

115The effect of a 100% waste agreement was that a Supplier indemnified Coles against all of the purported costs to Coles of waste or markdowns, including waste or markdowns that were caused by Coles and were outside the control of the Supplier.

116On 19 September 2011, Coles:

116.1provided its CMs in the Frozen Business Category with a report (the waste report) containing information about the purported costs to Coles of waste and markdowns that occurred in relation to products Coles acquired from the Suppliers listed in the report for its Frozen Business Category; and

116.2instructed the CMs to seek to obtain waste payments and 100% waste agreements from the Suppliers listed in the waste report, in order to enable Coles to meet its budget targets in that Business Category for the 2012 financial year.

117The waste report did not contain information about:

117.1the causes of waste and markdowns listed in the report; or

117.2what, if any, contribution each of the Suppliers listed in the report had made to the causes of the waste and markdowns associated with their products in the report.

118One of the Suppliers listed in the waste report was Colonial Farm.

119As at 27 September 2011, the Trading Arrangements between Colonial Farm and Coles did not include a term that required Colonial Farm to make a payment to Coles for waste or markdowns.

121.1there was no agreement between Colonial Farm and Coles pursuant to which Coles was entitled to a payment for waste from Colonial Farm;

121.2Colonial Farm was not in a financial position to make a payment for waste or enter a 100% waste agreement with Coles;

121.3Colonial Farm had just renegotiated its Trading Terms with Coles; and

121.4the rebates paid by Colonial Farm to Coles on products that Coles acquired from Colonial Farm had increased very substantially over the preceding 12 months.

122On 28 September 2011, Coles:

122.1informed Colonial Farm that Coles required Colonial Farm to agree to a 100% waste agreement; and

122.2inferred that the development of further business between Coles and Colonial Farm depended upon Colonial Farm agreeing to a 100% waste agreement.

123On 28 September 2011, Colonial Farm:

123.1requested details about the level of waste per store that Coles claimed it had been incurring on the products it acquired from Colonial Farm;

123.2stated that:

123.2.1given that Colonial Farm supplied products to Coles’ warehouses with a minimum shelf life of 12 months, Colonial Farm did not understand how it could be creating waste in Coles’ stores; and

123.2.2if Coles could establish for Colonial Farm how waste was being caused, Colonial Farm could work with Coles to address the issue, rather than paying for waste that seemingly would continue.

124On 5 October 2011, Coles sought an update from its Frozen Business Category CMs as to how many of Coles’ Suppliers the CMs had secured a 100% waste agreement with.

125Subsequent to the matter in paragraph 124 above, on 5 October 2011, Coles:

125.1provided Colonial Farm with a report purporting to show the waste and markdowns that Coles claimed had occurred in relation to the products that Coles had acquired from Colonial Farm in the previous year;

125.3again inferred that the development of further business between Coles and Colonial Farm depended upon Colonial Farm agreeing to a 100% waste agreement; and

125.4requested a response within two days.

126The report referred to in paragraph 125.1 did not contain the details that Colonial Farm had requested in the email referred to in paragraph 123.1 above.

127Subsequently on 5 October 2011, Colonial Farm:

127.1repeated its request for the details referred to in paragraph 123.1 above; and

127.2informed Coles that the decision maker for Colonial Farm would not be available until 10 October 2011.

128Later on 5 October 2011, Coles:

128.1indicated that Coles would attempt to provide the information requested by Colonial Farm; and

128.2requested that the 100% waste agreement be finalised on 10 October 2011.

129On 6 October 2011, Coles, by email to Colonial Farm:

129.1provided Colonial Farm with another report purporting to show the waste and markdowns that Coles claimed had occurred in relation to the products that Coles had acquired from Colonial Farm in the preceding 15 months;

129.2indicated that it would be difficult for Coles to provide Colonial Farm with the details requested by Colonial Farm;

129.3stated that Coles required Colonial Farm to agree to a 100% waste agreement with Coles; and

129.4stated that Colonial Farm was required to confirm its agreement by 10 October 2011.

130On 7 October 2011, Colonial Farm informed Coles that:

130.1the report referred to in paragraph 129.1 above did not enable Colonial Farm to identify any contribution Colonial Farm had made, if any, to the causes of the waste and markdowns associated with their products in the report;

130.2Colonial Farm could not identify any causes of waste and markdowns that were attributable to Colonial Farm; and

130.3the 100% waste agreement sought by Coles meant that Coles had no responsibility for any action by Coles that resulted in waste and markdowns on the products Coles acquired from Colonial Farm.

131By 10 October 2011, Colonial Farm considered that it was required to agree to a waste agreement.

132On 10 October 2011, Colonial Farm informed Coles that:

132.1Colonial Farm would agree to make a payment to Coles that is equivalent to 50% of the purported costs to Coles of the waste and markdowns that Coles claimed had occurred in relation to the products Coles acquired from Colonial Farm in the previous 12 months;

132.2Colonial Farm would agree to make payments to Coles that are equivalent to 50% of the purported costs to Coles of the waste and markdowns that Coles claims occurs in relation to the products Coles acquires from Colonial Farm in the future on an ongoing basis (the 50% waste agreement);

132.3Colonial Farm did not consider that it was responsible for, or could control, all waste and markdowns;

132.4in agreeing to the matters in paragraphs 132.1 and 132.2 above, Colonial Farm:

132.4.1wanted to work with Coles to identify the causes of waste and markdowns with a view to reducing waste and markdowns; and

132.4.2would rely on monthly reporting of waste and markdowns by Coles to Colonial Farm.

134.1Colonial Farm would agree to make a payment to Coles that was equivalent to 60% of the purported costs to Coles of the waste and markdowns that Coles claimed had occurred in relation to the products Coles acquired from Colonial Farm in the previous 12 months; and

134.2Colonial Farm would agree to make payments to Coles that were equivalent to 60% of the purported costs to Coles of the waste and markdowns that Coles claims occurs in relation to the products Coles acquires from Colonial Farm in the future on an ongoing basis (the Colonial Farm waste agreement);

134.3Colonial Farm made this proposal because it thought this would improve its future relationship with Coles.

135The CM who had received the instruction referred to in paragraph 116.2 above and the email referred to in paragraph 124 above, reported internally within Coles that:

135.1he had sought 100% waste agreements from each of the Suppliers for whom he was responsible; and

135.2he had obtained the agreements referred to in paragraphs 134.1 and 134.2 above from Colonial Farm, which he described as a “good win”.

136On 12 October 2011, Coles, by email to Colonial Farm, agreed to the offer referred to in paragraph 134 above, but indicated that Coles also required Colonial Farm to agree to pay another unrelated rebate, an ARC rebate, to Coles by Wednesday of the following week.

137On 13 October 2011, Colonial Farm requested, by email, an explanation in relation to how Coles would claim payments for waste and markdowns from Colonial Farm.

138Coles did not provide the information sought by Colonial Farm that is referred to in paragraph 137 above.

Bayview Seafoods Pty Ltd (Bayview)

Background

139Bayview manufactures and supplies ‘value-added’ gluten free and fish protein products to retailers and other customers.

140The goods Coles acquired from Bayview were frozen food products, with a long shelf life. They were acquired by Coles for its Frozen Business Category.

141During the relevant period, Coles was in a substantially stronger bargaining position than Bayview, in particular because:

141.1Coles represented a significant proportion of the sale of Bayview’s products;

141.2Coles determined whether it would continue to acquire grocery products from Bayview;

141.3Coles determined whether it would substitute grocery products it was acquiring from Bayview with products acquired from another Supplier; and

141.4of the matters set out at paragraph 16 above.

142By October 2011, Coles was aware that Bayview was suffering financial hardship, partly as a result of the terms of its trading relationship with Coles.

Requiring a 100% waste agreement

143One of the Suppliers listed in the waste report referred to in paragraph 116.1 above was Bayview.

144As at 6 October 2011, the Trading Arrangements between Bayview and Coles:

144.1included a term that required Bayview to pay an ongoing rebate for ullage, regardless of whether or not ullage occurred in relation to products that Coles acquired from Bayview; and

144.2did not include a term that required Bayview to make a payment to Coles for waste or markdowns.

145On 6 October 2011, Coles, by email to Bayview:

145.1provided Bayview with a report purporting to show the waste and markdowns that Coles claimed had occurred in relation to the products that Coles had acquired from Bayview in the preceding 15 months;

145.2stated that Coles could not bear the purported costs of waste and markdowns;

145.3informed Bayview that Coles required Bayview to agree to a 100% waste agreement with effect from 1 July 2011;

145.4informed Bayview that waste dilutes the margins on individual products which impacts on the viability of ranging products; and

145.5sought a response from Bayview by Tuesday, 11 October 2011.

146On 10 October 2011, Bayview, by email to Coles:

146.1expressed concern about the claimed waste and stated that Bayview’s products were frozen products with very good shelf life and therefore Bayview could not imagine what justification there was for the waste and markdowns listed in the report referred to in paragraph 145.1 above;

146.2stated that Bayview deserved more detail about the waste and markdowns listed in the report referred to in paragraph 145.1, including the causes of the waste and markdowns; and

146.3sought an explanation from Coles as to what the ullage payments referred to in paragraph 144.1 above covered.

147On or about 12 October 2011, during a telephone conversation between Coles and Bayview:

147.1Coles informed Bayview that:

147.1.1the ullage rebate payments made by Bayview to Coles, in accordance with the Trading Arrangements referred to in paragraph 144 above, only covered waste occurring in Coles’ distribution centres;

147.1.2Coles required Bayview to agree to the 100% waste agreement referred to in paragraph 145.3 above;

147.2Bayview agreed to enter into a 100% waste agreement with effect from about 27 June 2011.

150.2Bayview would work with Coles to determine the causes of any waste or markdowns that occurred in relation to the products that Coles acquired from Bayview, and to identify a remedy.

151On 12 October 2011, Coles indicated that it would claim money from Bayview in accordance with the 100% waste and markdown agreement, referred to in paragraph 150 above, for purported waste and markdowns from 27 June 2011.

152By the communications to Bayview that are outlined in paragraphs 145 and 147, above, Coles:

152.1conveyed to Bayview that it was necessary for Bayview to enter into the 100% waste agreement referred to in paragraph 145.3, above, in order to maintain a trading relationship with Coles; and

152.2intended to convey to Bayview that it was necessary for Bayview to enter into the 100% waste agreement referred to in paragraph 145.3, above, in order to maintain a trading relationship with Coles.

Penalty for late deliveries

153On 21 October 2011, Coles informed some of its Suppliers, including Bayview, that, amongst other things, for deliveries from 20 October 2011 Coles:

153.1would impose a five dollar per carton penalty on Suppliers who did not deliver stock in full and as scheduled (the Frozen Business Category Penalty); and

153.2the Frozen Business Category Penalty would not apply to the first 200 cartons delivered per day per category for each Supplier.

154The amount of the Frozen Business Category Penalty was not calculated by reference to any assessment by Coles of the likely cost to Coles, if any, of the Suppliers who were informed of the matters in paragraph 153 above, not delivering in full and as scheduled.

155The Trading Arrangements between Bayview and Coles did not contain a term pursuant to which:

155.1Bayview was required to pay an amount to Coles for not delivering stock in full and as scheduled; and

155.2Coles could impose the Frozen Business Category Penalty referred to in paragraph 153.1 above.

156As at 21 October 2011, the margin that Bayview received from the sale of a carton of its products to Coles was less than the value of the Frozen Business Category Penalty.

157In October 2011, Bayview delivered 7,458 cartons of its products to Coles:

157.1to be sold by Coles as part of a scheduled promotion;

157.2but not in full on time (Bayview late delivery).

158On 31 October 2011, during a telephone conversation between Coles and Bayview, Coles said that Bayview should:

158.1pay a penalty, calculated by reference to the Frozen Business Category Penalty, in relation to the Bayview late delivery; and

158.2make a payment to Coles for the difference between the revenue that Coles had previously forecast that it would derive from the scheduled promotion, as part of which the 7,458 cartons were to be sold, as compared with the revenue that it was now estimating that it would derive from the scheduled promotion.

159On 31 October 2011, following the conversation referred to in paragraph 158 above, Coles:

159.1informed Bayview that:

159.1.1Coles considered there to have been 7,458 late and missed cartons, which was relied on for the purposes of calculating the Frozen Business Category Penalty; and

159.1.2Coles had previously forecast that it would have revenue of $123,244 from the promotion whereas it now estimated that it would have revenue of $65,319 from the promotion;

159.2requested that Bayview respond to the request referred to in paragraph 158 above by 10am on Thursday, 3 November 2011.

160By about 31 October 2011, Coles had determined a profit target for its Frozen Business Category for the week commencing 31 October 2011.

161On 3 November 2011, Bayview informed Coles that:

161.1Bayview did not believe that the Bayview late delivery caused Coles’ retail stores to run out of stock;

161.2Bayview was only informed about the Frozen Business Category Penalty a week before the Bayview late delivery occurred;

161.3Bayview believed that a penalty for the Bayview late delivery would be unreasonable;

161.4Bayview could not underwrite Coles' sales expectations;

161.5Bayview believed the major reason why Coles did not meet the forecast sales targets was because Coles did not discount the product as much as it had intended to when it determined the forecast sales;

161.6Bayview required further information to determine whether the Bayview late delivery resulted in lost sales to Coles; and

162On 3 November 2011, during one or more telephone conversations between Coles and Bayview, Coles informed Bayview that:

162.1Coles was disappointed by Bayview’s response referred to in paragraph 161;

162.2Coles wanted Bayview to make the payments referred to in paragraph 158 above; and

162.3there may be negative consequences for Bayview’s trading relationship with Coles if Bayview did not make the payments referred to in paragraph 158 above to Coles.

163During the conversation or conversations referred to in paragraph 162, above, Coles did not provide Bayview with the further information sought by Bayview.

164On 4 November 2011, Coles, by email to its CMs in its Frozen Business Category, made a request that they internally report any money they were expecting to receive from Coles’ Suppliers towards the profit target referred to in paragraph 160 above.

165On 4 November 2011, the CM dealing with Bayview, internally reported that he was still trying to “land Bayview money” for the Bayview late delivery.

166On 4 November 2011, Coles, by email to the CM dealing with Bayview:

166.1informed him that Coles required $42,000 to meet the profit target referred to in paragraph 160 above; and

166.2asked him how much money Coles would receive from Bayview.

167On 4 November 2011, the CM dealing with Bayview replied to the email referred to in paragraph 166 above, and reported that he hoped the money Coles would receive from Bayview was close to $42,000.

168On 4 November 2011, Coles by email to the CM dealing with Bayview, made a request that he respond as to how much money Coles would receive from Bayview.

169By about 10 November 2011, Bayview:

169.1had agreed to make payments to Coles to the total value of approximately $30,500 in relation to the Bayview late delivery; and

169.2commenced making the payments referred to in paragraph 169.1 above.

171Coles acquired a hard boiled confectionery product from Benny’s for sale in Coles’ retail stores. The product was acquired from Benny’s by Coles for Coles’ Impulse Business Category.

172During the relevant period, Coles was in a substantially stronger bargaining position than Benny’s, in particular because:

172.1Coles represented a significant proportion of the sale of Benny’s products;

172.2Coles determined whether it would continue to acquire grocery products from Benny’s;

172.3Coles determined whether it would substitute grocery products it was acquiring from Benny’s with products acquired from another Supplier; and

172.4of the matters set out at paragraph 16 above.

173During the relevant period, the Trading Arrangements between Benny’s and Coles did not include a term that required Benny’s to make a payment to Coles for late or short deliveries.

Penalty for short deliveries

174On 2 August 2011, Coles informed some of its Suppliers in its Confectionery Category that, amongst other things, for any product line that Coles acquired from the Suppliers who received the email that was out of stock in Coles’ distribution centres for over a week, Coles would:

174.1delete the product line, meaning that Coles would no longer acquire the product from the Supplier for sale in Coles’ retail stores; or

174.2maintain the product line in the range available for sale at Coles’ retail stores, but claim $10 per unsupplied carton and delete the product line if it was not supplied to Coles’ Distribution Centres for three weeks.

175On 15 September 2011, Coles informed Benny’s, by email, that:

175.1Benny’s had not supplied 95 cartons to Coles;

175.2Coles would impose a standard rate fine of $10 per carton for each carton that Benny’s did not supply to Coles; and

175.3Coles would raise a claim for $950 from Benny’s.

176The email included a table, which contained, amongst other things, the following information:

176.1the number of cartons that were meant to be included in the order;

176.2the order number;

176.3the date the deliveries referred to in the table were to be made; and

176.4the number of alleged unsupplied cartons.

177On 15 September 2011, Benny’s informed Coles that:

177.1Benny’s had supplied stock as required by Coles;

177.2Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;

177.3Benny’s believed that there were errors in the information that Coles was relying on in support of its claim to impose fines for unsupplied cartons;

177.4Benny’s would not accept the claim; and

177.5the per carton fine Coles sought to impose exceeded the margin that Benny’s made on each carton of the product Coles acquired from Benny’s.

178Despite this response from Benny’s, on 16 September 2011 Coles issued Benny’s with a ‘Credit Advice Tax Invoice’ for the amount of $1,045 (GST inclusive), which is $950 (excluding GST).

179On 21 September 2011, without the authority or agreement of Benny’s, Coles deducted $1,045 (GST inclusive) from a remittance due to Benny’s for products that Coles had purchased from Benny’s.

180On 22 September 2011, Coles informed Benny’s that:

180.1Benny’s had not supplied 54 cartons to Coles;

180.2Coles would raise claims for all unsupplied cartons at the rate of $10 per carton; and

180.3Coles would raise a claim for $540 from Benny’s.

181On 22 September 2011, Benny’s:

181.1again informed Coles that Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;

181.2advised Coles that Benny’s would not accept the claims, particularly having regard to the cost price of Benny’s products to Coles;

181.3again informed Coles that Benny’s believed there were significant errors in the information that Coles was relying on in support of the claims;

181.4told Coles that the standard rate fine of $10 per carton for all Suppliers was unfair and unreasonable; and

181.5indicated to Coles that Benny’s wanted to meet with Coles to discuss the claims and other matters.

182On 22 September 2011, Coles, by email to Benny’s, stated that the claim referred to in paragraph 180 above, would stand.

183Despite Benny’s request for a meeting with Coles, as referred to in paragraph 181.5 above, Coles did not meet with Benny’s to discuss the claims.

184Between 22 and 27 September 2011, Benny’s made several unsuccessful attempts to contact Coles to discuss the claims for unsupplied cartons.

185On 27 September 2011, Benny’s, by email to Coles, referred to the attempts that Benny’s had made to contact Coles, and informed Coles that:

185.1Benny’s had not previously been advised of, or agreed to, fines for unsupplied cartons;

185.2there were errors in the information that Coles was relying on in support of the claims; and

185.3Benny’s considered the standard rate fine of $10 per carton to be unjustifiable, having regard to the price Coles pays to Benny’s to acquire products from Benny’s.

186On 29 September 2011, Coles told Benny’s that:

186.1the standard rate fine of $10 per carton for all Suppliers applies regardless of the cost of the product to Coles;

186.2the claims raised against Benny’s would stand; and

186.3Coles would continue to raise claims for unsupplied cartons against Benny’s.

187Despite the various responses from Benny’s, on or about 29 September 2011, without the authority or agreement of Benny’s, Coles deducted $594 (GST inclusive) in relation to the claim referred to in paragraph 180 above, from a remittance due to Benny’s for products that Coles had purchased from Benny’s.

188By 11 November 2011, Coles had not provided Benny’s with any further information to substantiate or explain the claims for unsupplied cartons.

189On 11 November 2011, Benny’s requested further information in relation to the claim referred to in paragraph 180 above.

190On 23 November 2011, Coles advised Benny’s that the claim Benny’s had sought further information about was for unsupplied cartons and offered to discuss the matter further with Benny’s.

191On 23 November 2011, Benny’s advised Coles that Benny’s:

191.1wished to discuss the claim referred to in paragraphs 189 and 190 above with Coles; and

191.2required further information about the claim.

192Coles did not respond to these requests.

193Coles retained the money that it had deducted from remittances due to Benny’s in relation to the claims for unsupplied cartons without the authority or agreement of Benny’s.

Conclusion

194Coles admits each of the contraventions in the proposed declarations which are Annexure A to the joint submissions filed in these proceedings.

ANNEXURE 3 – s 87B UNDERTAKING IN VID 253 OF 2014 AND 609 OF 2014

Persons giving this undertaking

This undertaking is given to the Australian Competition and Consumer Commission (ACCC)by Coles Supermarkets Australia Pty Ltd ACN 004 189 708 (Coles) and Grocery Holdings Pty Ltd (ACN 007 427 581) (GHPL)of 800-838 ToorakRoad, Hawthorn East in the State of Victoria, for the purposes of s87B of theCompetition and Consumer Act 2010 (Cth) (the Act).

Background

1.Coles carries on business in trade or commerce as a supermarket retailer and supplies grocery products for retail sale to customers in Australia.

2.Coles engages in the business of acquiring grocery products from manufacturers and other suppliers, and selling those products to customers in Australia through Coles’ retail stores.

3.Coles operates retail stores in every Australian State and mainland Territory.

4.The ACCC is currently engaged in two litigation proceedings: VID253/2014 (ARCproceedings) and VID609/2014 (second proceedings) (together‘the proceedings’) against Coles and GHPL in the Federal Court of Australia in relation to, in broad terms, Coles’ dealings with some of its suppliers in the period December 2010 to December 2011.

5.In the ARC proceedings, the ACCC alleged that Coles engaged in unconscionable conduct in its dealings with certain smaller suppliers (described by Coles as Tier 3 suppliers) in relation to the implementation of its Active Retail Collaboration (ARC) program (consisting of elements including Economic Order Quantities (EOQ) and a supplier portal (The Portal)), in contravention of the Australian Consumer Law.

6.The proceedings have been resolved between the parties, upon admissions made in the Agreed Statements of Facts and Admissions filed in the proceedings, and as part of that resolution Coles and GHPL have agreed to give this undertaking.

Commencement of undertaking

7.This Undertaking comes into effect when:

(a)this Undertaking is executed by Coles and GHPL;

(b)this Undertaking so executed is accepted by the ACCC; and

(c)following the making of orders by the Federal Court in the ARC proceedings (the commencement date).

Undertaking to ARC Renegotiation and Repayment

8.Coles and GHPL undertake, for the purposes of s 87B of the Act, to give effect to the matters set out at paragraphs 9 to 17 below.

9.Within two weeks of the commencement date, Coles will appoint the Honourable Jeff Kennett AC as an Independent Arbiter to undertake the reviews set out below.

10.With respect to each supplier identified by Coles for the purposes of the ARC program introduced to suppliers in October 2011 who Coles described as Tier 3 suppliers, listed in Annexure A to this Undertaking, the Independent Arbiter will:

(a)Retain a partner of an independent accounting firm (the firm), with relevant expertise and appropriate resources, approved by the ACCC and Coles to assist the Independent Arbiter.

(b)Instruct the firm to prepare an analysis of each Tier 3 supplier that identifies the extent to which the supplier has utilised ARC including:

(i)in relation to the Portal, how often and which elements of the Portal each supplier has used since it gained Portal access;

(ii)in relation to EOQs, whether each supplier has been obtaining EOQs at the level indicated by Coles during ARC negotiations.

(c)Within eight weeks of appointment (or a period otherwise agreed between Coles and the ACCC), provide the details and results of the firm’s analysis to each Tier 3 supplier (and to Coles) together with a summary of the amount paid by the Tier 3 supplier to Coles in ARC rebates each financial year.

(d)At the same time as providing the details and results at (c) above, provide the following options (to be available to the Tier 3 suppliers for a period of 6 weeks) to each such Tier 3 supplier, noting that eligibility for any refund of prior payments will be based on the matters set out in paragraphs (e) and (f) below:

(i)Remain in ARC, but initiate a review to be conducted by the Independent Arbiter of eligibility for any refund of prior payments and the rebate to be paid going forward.

(ii)Exit ARC but initiate a review to be conducted by the Independent Arbiter of eligibility for any refund of prior payments. ARC payments would cease immediately and ARC benefits would cease after 6 months. Senior Coles Management, in good faith, will work with the supplier on how it can continue to supply Coles without access to the Portal and EOQ.

(iii)Exit ARC without participation in a review by the Independent Arbiter. ARC payments would cease immediately and ARC benefits would cease after 6 months. Senior Coles Management, in good faith, will work with the supplier on how it can continue to supply Coles without access to the Portal and EOQ.

(iv)Remain in ARC on current terms, without participation in a review by the Independent Arbiter.

(e)Upon election by a Tier 3 supplier requesting a review under 10(d)(i) or (ii) above, the Independent Arbiter will review the circumstances of the supplier and assess whether each supplier should receive a refund and or any adjustment to the rebate. In relation to any review conducted by the Independent Arbiter, the Independent Arbiter will invite the Tier 3 supplier and Coles to provide information and submissions in respect of the assessment and, as appropriate, discuss the assessment with the supplier and Coles. A supplier or Coles may provide any submissions confidentially to the Arbiter. The Arbiter will conduct the review confidentially.

(f)Without limiting the information and submissions referred to in paragraph (e), when determining the eligibility for any refund of prior payments and the rebate to be paid going forward the Independent Arbiter must take into account:

(i)the circumstances of the Tier 3 supplier’s agreement to commence paying the ARC rebate, including the information that was provided by Coles at the time the agreement was made and whether the Tier 3 supplier had an opportunity to decline to participate in ARC or to negotiate the terms of the ARC rebate amount; and

(ii)the benefit in broad terms the Tier 3 supplier considers it has received from access to ARC over and above the arrangements it had with Coles prior to the implementation of ARC.

(g)Any Tier 3 supplier that elects pursuant to paragraph 10(d)(ii) or (iii) to exit ARC may rejoin ARC at any time. Such a supplier may, within 3 months of the election to leave ARC, request that the Independent Arbiter review and assess the ongoing rebate that would be applicable if the supplier had not exited ARC, and thereafter rejoin ARC at its request at the rate determined by the Independent Arbiter.

11.With respect to the suppliers named in the second proceedings, the Independent Arbiter will review the circumstances of the suppliers in respect of whom Coles has made admissions in a Statement of Agreed Facts, and assess, without restriction or limitation, whether each supplier should be paid a refund of relevant payments to Coles or GHPL. This review is to be completed within 3 months from the commencement of the undertaking.

12.The Independent Arbiter may retain any other resources he or she considers necessary or desirable to efficiently conduct the reviews contemplated by this proposal.

13.The Independent Arbiter must complete the review set out in paragraphs 10(d)(i) and (ii) and make a determination within a three month period commencing from the date a Tier 3 supplier elects under either paragraph 10(d)(i) or (ii) above, or in the case of a request under paragraph 10(g) within 3 months of the supplier making that request (in each case unless the supplier and Coles agree to extend the period).

14.Coles and GHPL must provide any information or documents requested by the Independent Arbiter, and will be bound by the determination of the Independent Arbiter in respect of each supplier.

15.At the conclusion of the review process, without revealing the identity of any supplier or information confidential to specific suppliers the Independent Arbiter will report publicly on the outcome of the reviews including on the amount of refunds provided to suppliers in accordance with paragraphs 10(d)(i) and (ii) and 11.

16.Coles or GHPL will pay to each supplier any refund determined by the Independent Arbiter within 28 days of the determination.

17.Coles will bear the costs of the Independent Arbiter and the firm as well as the costs of any additional resources retained by the Independent Arbiter.

Acknowledgments

18.Coles acknowledges that:

18.1the ACCC will make this Undertaking publicly available including by publishing it on the ACCC’s public register of section 87B undertakings on its website;

18.2the ACCC will, from time to time, make public reference to this Undertaking including in news media statements and in ACCC publications; and

18.3this Undertaking in no way derogates from the rights and remedies available to any other person arising from the alleged conduct.